SUMMARY
- US earnings growth is being driven by technology stocks.
- Tech has much higher profit margins and lower valuations today than at the ‘bubble’ peak in the late 1990s.
- Tech’s valuation relative to the S&P 500 is not stretched, in our view.
We are excited to release our July 2025 Chart Pack, our visual quarterly that is designed to walk investors through what is happening in markets and why, what may come next, and how we are positioning RiverFront portfolios. In today’s Weekly View, we picked three Chart Pack visuals to highlight, all concerning fundamentals in the influential US technology sector.
The second quarter felt like a continuation of Q1’s “Headline Hell’, with controversy surrounding US budget bills, trade negotiations, and even war in the Middle East making its’ presence felt. Despite these headlines, however, the US economy – and stock markets – demonstrated remarkable resilience. We believe this scenario should be sufficient to create more upside in stocks this year, despite ongoing volatility.
The second quarter in particular saw vindication for US tech investors, with the tech-heavy Nasdaq Composite overcoming its Q1 weakness to lead major indexes and post fresh all-time highs this past quarter. This strength was due, in our view, to continued strong fundamentals, as demonstrated by tech’s impressive earnings performance both in absolute terms and relative to the broader S&P 500 (see Chart 1, below). For investors worried that tech stocks are now in a late 1990s-style ‘bubble’, we believe that today’s tech companies are both dramatically more profitable than in the peak in 1999 and ‘cheaper’ (both relative to history and relative to the broad market – Charts 2 and 3, below).
Riverfront’s balanced portfolios remain overweight in US stocks, and we still favor shares of high cash flow-generating tech companies in the face of continued robust investment in cloud computing and AI.
US Earnings Resiliency is Led by Technology-Related Stocks
Tech Profitability Much Higher, Valuations Much Lower Today Than in Late 1990s ‘Tech Bubble’
Tech’s Relative Valuation to S&P 500 Now Back Near Average
By Chris Konstantinos, CFA, Managing Partner, Chief Investment Strategist
Originally published at RiverFront Investment Group
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