Technology stocks just keep moving higher, sparking fears of a bubble amid soaring valuations. The Nasdaq-100, a leading gauge of large-cap tech stocks, is now up 20% year to date. If it holds, this would mark the fourth straight year that it has returned more than 20%.
The Invesco QQQ ETF (NASDAQ: QQQ), which tracks the Nasdaq-100, has an average annualized return of 26% over the past three years. Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005.
But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue » This four-year large-cap run has resulted in valuations reaching historically high levels.
The Shiller P/E ratio, which tracks S&P 500 stock valuations across a 10-year period, adjusted for inflation, is close to an all-time high at roughly 40, the highest since the dot-com boom and bust in 1999-2000, when it peaked at 44. Understandably, some investors are shying away from tech stocks amid this tenuous, uncertain environment for large-cap stocks. Here's why you should maintain allocations to technology stocks, particularly through a tech ETF.
One thing about this market that sometimes gets overlooked is that technology stocks' valuations are not as high as they were during the dot-com boom. The P/E ratio of the Nasdaq-100 is around 28, which is certainly elevated but not as high as it was in 2024, when it reached 35, or in 2000, when it was over 70. It was elevated throughout the dot-com bust, peaking at 79 in 2002 and remaining above 30 until sometime in 2004.
There was a lot of speculation that drove those dot-com-era stocks higher without any real earnings to back them up. There is less of that now, as many high-valuation tech and AI stocks have huge earnings and huge expectations for future earnings. If you are concerned about an overheated tech sector, the best way to tap into it right now is through an ETF, such as the QQQ or the Vanguard Information Technology ETF (NYSEMKT: VGT), to name two of the most popular.
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