Market Rally Elevates Valuations, but Bargains Remain in Tech Sector

The stock market continues its upward trajectory, gaining 10% year-to-date and nearly 20% over the past 12 months. Current valuations hover around 22 times forward earnings—a level last seen before the dot-com bust and during the post-pandemic surge. While the Magnificent Seven tech giants dominate with a 35% share of the S&P 500's market cap, their average forward P/E of 30 overshadows broader market multiples.

Alphabet emerges as an outlier, trading at just over 20 times forward earnings—below both its peer group and the S&P 500. Investor concerns about AI disrupting its search business appear overstated, creating a potential value opportunity. The disconnect between perception and fundamentals highlights selective undervaluation in an otherwise frothy market.