Why Big Tech's dominance could be a double-edged sword for the market
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Thank Big Tech for helping power the S&P 500 to its eighth record high of the year.
- 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.
- The coming earnings season should answer the question.
