The wreckage in large technology stocks that sent the Nasdaq 100 Index into a correction is flashing signs that have marked turning points for the group in the past.
Chief among the signals is how much of Big Tech’s valuation premium to the rest of the market has been erased. Such a compression has historically set the sector up for outperformance.
After an 11% slide from its last record in October, the tech-focused gauge now trades at 21 times projected 12-month earnings, just 1.7 points above that of the S&P 500 Index. A gap that narrow has appeared only a quarter of the time during the aftermath of the dot-com bust at the turn of the century, data compiled by Bloomberg show. The last time the index’s valuation premium to the broader market was this low, the Nasdaq 100 proceeded to outperform the S&P 500 by the most in a year.
Of course, the economic uncertainty created by the Iran war is threatening to render mute many trusted market signals of the past, and only time will tell if that’s the case with this one. Still, Big Tech’s time-honored history of leading the market and being its profit engine has many Wall Street strategists studying the oversold signals piling up and recommending the sector as the best place to be.
“The correction in tech is a positive and will create a buying opportunity within the group,” said Michael O’Rourke, chief market strategist at Jonestrading Institutional Services LLC. “Investors should use it to be selective stock pickers in the companies where they have greater confidence.”
Technology stocks have been pummeled since peaking in October amid growing concern about whether hefty spending on artificial intelligence will pay off, while more recently the escalating war in Iran further dented risk appetites. The Nasdaq 100’s slide into a technical correction on Friday, marked by a drop of at least 10% from a peak, is the first such episode since President Donald Trump’s tariffs sent US stocks to the brink of a bear market in April 2025.
While pinpointing exact turning points is difficult, oversold conditions have typically proven to be attractive entry points for investors: During another episode in which valuation premiums for the Nasdaq 100 got this depressed relative to the S&P 500 — September 2013 — the tech-focused benchmark went on to have its best quarter in six compared with the S&P 500.
“We are buyers of Big Tech,” said Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, as he asserted his confidence that the AI revolution is going to accelerate in 2026 and said the price-to-earnings chart for the Nasdaq 100 relative to the S&P 500 is compelling. “All the more so since there are a number of tech stocks whose valuation is below the pandemic trough.”
A number of other Wall Street pros have been circling beaten-down tech stocks for bargains, including Christopher Harvey at CIBC Capital Markets. He pointed to tech behemoths including Alphabet Inc., Apple Inc., Nvidia Corp. and Palantir Technologies Inc.
Wells Fargo Securities LLC’s Ohsung Kwon expects imminent outperformance for the Nasdaq 100 and mega-cap tech shares.
Tech’s relative outperformance is at the bottom of its decade-long trend channel, while investor positioning is notably underweight in the 28th percentile, according to Deutsche Bank data. Of the so-called Magnificent Seven stocks — Nvidia, Microsoft Corp., Apple, Alphabet, Amazon.com Inc., Meta Platforms Inc. and Tesla Inc. — all in the group have plunged at least 10% or more from their all-time highs.
“Tech has seen one of the more severe drawdowns relative to other sectors, and positioning has also been quite weak lately, which I think ups the odds for some relief rallies,” said Kevin Gordon, head of macro research and strategy at Charles Schwab & Co. “The risk is that optimistic earnings estimates haven’t yet reflected some of the disruption that stems from a prolonged war.”
“In that more severe scenario,” he added, “tech wouldn’t act as strong of a haven, and I think investors would go into more traditional defensives.”
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