The sky-high valuations seen in tech stocks due to the promise of artificial intelligence aren’t so “extreme” when looking at prior innovation cycles. Data analyzed by Empirical Research Partners shows that the steep valuations reached by popular AI-driven names powering the market higher in 2023 look slim when compared with the lofty ones seen during the peak of the mainframe era in 1969, the PC wave in 1983 and the internet boom in 2000. “The relative forward-P/Es of today’s AI leadership are still a far cry from what was seen at the peaks of past innovation waves,” said managing partner Michael Goldstein in a Tuesday note.” In fact, they sit close to the level reached a year before the tops.” NVDA YTD mountain Nvidia shares in 2023 This even stands true for Nvidia , up 169% this year and sitting at a forward PE multiple of around 52 times as investors bet on its AI potential. To reach this conclusion, the firm examined forward price-to-earnings multiples and free cash flow yields within the technology sector during the height of each of these cycles. For AI, he examined holdings within the Roundhill Generative AI and Technology ETF (CHAT) , which includes Nvidia, Microsoft , Alphabet , Baidu and more. While valuations for these stocks appear “rooted in reality,” Goldstein noted that a correction isn’t out of the question. “The combination of record-setting relative returns and the stocks’ elevated arbitrage risk suggests it won’t take too much to create a correction, but on the whole the valuation of the stocks doesn’t yet look excessive,” he wrote. — CNBC’s Michael Bloom contributed reporting
