Tech stocks could offer their best value in years after another stellar earnings season, analysts say

• The forward P/E ratio for the S&P 500 Information Technology sector peaked above 30x in October 2025 but has since declined as earnings growth lowered valuation multiples, creating what Morningstar calls a 'fantastic entry point'
• The magnificent seven's combined 2026 capex now tracks around $725 billion versus previous expectations of roughly $670 billion, reflecting continued heavy investment in AI infrastructure
• Physical constraints like token availability (basic units of AI processing) may pose challenges to growth as tech firms increasingly ration usage due to supply limitations

Summary: Tech Stocks Offer Best Value in Years After Strong Earnings

Key Findings:

U.S. tech stocks present their most attractive valuations since 2019 following a stellar earnings season, according to Morningstar analysis. The AI theme is now trading at its largest discount since 2019, despite concerns about a tech bubble in 2024-2025.

Valuation Metrics:

The S&P 500 Information Technology sector's forward P/E ratio peaked above 30x in October 2025 but has since declined as companies "grew into" their valuations through strong earnings. Morningstar's price-to-fair-value metric indicates a "fantastic entry point" for investors.

Capital Expenditure:

The "Magnificent Seven" tech companies increased their combined 2026 capex projections to approximately $725 billion, up from previous expectations of $670 billion, following strong April earnings reports.

Market Implications:

Morningstar's Michael Field believes AI fundamentals remain robust, with semiconductor demand exceeding expectations and data center infrastructure intact. However, skepticism exists among some analysts about sustainability.

Cautionary Views:

• Dan Kemp (Portfolio Thinking) questions whether companies can maintain supranormal returns indefinitely without competition eroding margins
• BNP Paribas' Sophie Huynh warns that physical constraints, particularly token availability rationing, could limit growth more than economic cycles
• Concerns exist about hyperscalers maintaining current capex levels long-term

Sector Dominance:

J.P. Morgan Private Bank notes tech has become investors' default solution across multiple investment themes—from AI and growth to inflation protection and defensive positioning—making it the dominant driver of portfolio returns and earnings growth across market conditions.