""Although this has mainly reflected developments in the 'big-tech' sectors, which have collectively continued to experience phenomenal earnings growth, FTM EPS have also picked up in the rest of the index," Capital Economics' chief markets economist John Higgins wrote in a note Monday. Meanwhile, the ratio of stock prices to earnings estimates has barely increased, edging up to roughly 22.6 from about 22.3 at the start of this year."
""The upshot is that price/FTM earnings ratios-for the S&P 500; the big-tech sectors combined; and the rest of the index-are still not as high as they were when the dotcom bubble burst," Higgins said. Another key difference between now and the earlier boom-bust era is that the Federal Reserve is lowering rates instead of raising them, though it's not clear how aggressive the current easing cycle will be."
Relentless stock-market highs, large OpenAI valuations, and hyperscaler debt have raised fears that the AI boom may resemble a tech bubble. Year-ahead forward-twelve-month (FTM) earnings per share forecasts for S&P 500 companies are rising and underpin the rally. FTM EPS gains are concentrated in big-tech sectors but have also picked up across the rest of the index. Price-to-FTM earnings ratios have barely risen, edging to roughly 22.6 from about 22.3, while big-tech ratios dipped marginally. Price/FTM ratios remain below the dotcom peak. The Federal Reserve is lowering rates instead of raising, and a sizeable correction could still occur after AI hype peaks, possibly not before 2027.
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