Tech Stocks May Be Cheapest in Years After Bumper Earnings Run

CNBC reported Friday that US technology stocks may now represent their most attractive entry point in years, with fresh Morningstar research suggesting the AI investment theme is trading at its steepest discount since 2019.

Earnings Finally Catch Up to Tech Stock Prices

For much of 2024 and 2025, market commentary was dominated by warnings of a bubble forming at the top of US equity markets. The so-called Magnificent Seven group of mega-cap tech companies had accumulated lofty valuations driven largely by AI enthusiasm. That froth peaked in October 2025, when the forward price-to-earnings ratio for the S&P 500 Information Technology sector exceeded 30 times, according to FactSet data cited by CNBC.

Since then, a run of strong quarterly earnings has done the heavy lifting. As profits grew, they expanded the denominator in the price-earnings equation, pulling multiples lower without requiring stock prices to fall. Morningstar chief equity strategist Michael Field told CNBC the combination of early 2026 market volatility and robust profit growth has produced a “fantastic entry point” for investors. Field argued AI fundamentals remain sound, pointing to semiconductor demand beating forecasts and data center investment still expanding at pace.

Background: The Valuation Bubble Debate

The fear of an AI-driven bubble was a persistent theme through 2024. Critics pointed to elevated multiples disconnected from near-term cash flows. Proponents countered that transformative technology cycles justify premium pricing. Morningstar’s price-to-fair-value framework now places the AI theme firmly in discount territory, a reversal from the premium readings that spooked investors just months ago.

Combined capital expenditure guidance from the Magnificent Seven for 2026 has also surged. Saxo Bank estimates their collective spend now tracks around $725 billion, up from prior expectations near $670 billion, following a strong April earnings round.

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Skeptics Warn Supernormal Returns Cannot Last Forever

Not everyone is convinced the good times roll indefinitely. Dan Kemp, founder of investment consultancy Portfolio Thinking, told CNBC that investors are now finding it as hard to imagine these companies failing as they once found it to imagine them succeeding. He cautioned that assuming supernormal returns persist without competitive erosion requires a leap of faith that capital markets rarely reward for long.

Sophie Huynh, portfolio manager at BNP Paribas Asset Management, raised a different constraint. She noted that physical limits on AI processing tokens, the basic units users purchase to run model tasks, could crimp profit growth faster than any economic cycle downturn. Supply of tokens is already being rationed by several major providers.

Despite those caveats, JPMorgan Private Bank’s global investment strategist Kriti Gupta captured the sector’s extraordinary reach in a May 1 note, writing that tech has become the answer investors reach for regardless of whether markets are pricing in growth, inflation, safety, or sustainability.

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