Why Big Tech's dominance could be a double-edged sword for the market
That dominance could also be the market's biggest vulnerability.
Why it matters: Nearly half of the S&P 500's earnings growth this year is coming from tech. That kind of concentration raises the stakes — and the risk — if the sector falters.
What they're saying:"The whole vibe on the current tech stonks conversation reminds me ... a lot of dot com before the crash," wrote Patrick Moorhead, founder of Moor Insights & Strategy, in a post on X.
"Instead of [Nvidia] we were piling money into [Cisco]," Moorhead wrote.
Catch up quick: The turn-of-the-century dot-com bubble — when hype drove a surge in tech stocks, which burst when earnings didn't justify valuations — is a cautionary tale that investors would be wise to remember.
Cisco is one of the poster children for the bubble, and often draws comparisons to Nvidia, which just became the first $4 trillion company.
At its peak valuation, Cisco traded at 200 times forward earnings. Nvidia is less than 40 right now, with the profit growth to back it up.
💭 Thought bubble, from Axios Pro Rata author Dan Primack: It's not just public companies, either. Venture capitalists mostly agree that they overspent and overvalued between 2020 and 2022, leading to a glut of stranded unicorns.
2025 is looking like a replay, with stratospheric startup valuations that often eclipse the ZIRP era. Median U.S. VC deal valuations are higher so far in 2025 than during the peak, save for a slight decrease for Series D+ rounds, per PitchBook.
What we're watching: Sky-high startup valuations mirror the eye-popping valuations of some Big Tech firms — the Magnificent Seven ETF (MAGS) trades at 73 times earnings.
Still, tech stocks could go up another 10% in the second half of the year thanks to the tailwind of AI, according to Wedbush analyst Dan Ives.
Yes, but: Elevated prices don't necessarily mean we're in bubble territory.
Unlike the early 2000s, today's tech giants have earnings and cash flow to back up their valuations, Sanctuary Wealth's chief investment strategist Mary Ann Bartels tells Axios.
The bottom line: The question is whether the tech rally is happening because of investors hyping up stock prices, or because of strong earnings that demand these higher multiples.
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