Tech stocks could offer best value in years after bumper earnings

US tech stocks are back in vogue after another stellar earnings season, but Morningstar analysis suggests the sector is offering investors the best value in years.

Market chatter in 2024 and 2025 frequently referenced fears of an emerging bubble at the upper end of the U.S. equity market; The “Magnificent Seven” have reached increasingly higher valuations, thanks in large part to the hype surrounding artificial intelligence.

This peaked in October 2025, when the S&P 500 Information Technology sector’s forward P/E ratio rose above 30x, according to FactSet. But successive periods of strong earnings since then have allowed tech stocks to “grow” into their stock prices by increasing the “E” denominator in the price-earnings equation and therefore lowering the valuation multiple.

Morningstar research shows that the AI ​​theme is currently trading at the largest discount since 2019.

Using the researchers’ own price-to-fair value metric, this represents a “great entry point” into the sector, according to chief equity strategist Michael Field.

“Artificial intelligence is not a bubble that will burst anytime soon; the fundamentals are solid,” Field said.

“Demand for semiconductors is exceeding expectations, and fundamentals such as data centers and infrastructure remain intact. The AI ​​story needs to go further, and investors should make the most of these opportunities while they still exist.”

Morningstar’s research pointed out that volatility in the US stock market in early 2026 led to a decline from record-high valuations among AI stocks, leading to “more attractive pricing” for those hardest hit.

According to Saxo Bank, capital expenditure for 2026 was among the “magnificent seven” in its April earnings updates; Total spending currently hovers around $725 billion, compared to previous expectations of around $670 billion.

But some analysts are skeptical about hyperscalers’ ability to maintain their current outstanding capex numbers into the future.

“We used to find it very hard to believe that companies could grow at these rates and make these kinds of profits, and now we find it very hard to believe that they can’t,” Dan Kemp, founder of investment consultancy Portfolio Thinking, told CNBC.

He said investors would need “strong conviction” to assume that companies can continue to generate extraordinary returns without facing competition, as is often the case in capital markets.

Central to the argument supporting superior earnings growth is the idea that AI is a ‘secular’ trend and is therefore insulated from the peaks and troughs of the economic cycle.

That may well be true, but physical constraints could pose a bigger problem for profits than the cycle itself, according to Sophie Huynh, portfolio manager at BNP Paribas Asset Management.

“Speed [AI] “Adoption may not be equal as restrictions may arise from the total amount of tokens in hand,” he added.

Tokens are basic transaction units purchased by users of AI models that allow them to execute tasks. Technology companies have increasingly begun to rationalize their use as supply dwindles.

Until then, technology remains the dominant theme in investor portfolios, and the sector is increasingly becoming “the answer to everything and everyone,” a driver of both cyclical and defensive trading and earnings growth, according to JP Morgan Private Bank.

“When investors get excited about AI, they buy technology,” global investment strategist Kriti Gupta wrote in a May 1 note.

“They bought technology when they were worried about inflation. They bought technology when they were looking for higher performance. They bought technology when they were looking for sustainability. They bought technology when they wanted to invest in growth. They bought technology when they wanted to get into the capex cycle. They bought technology when they were worried about the world and needed a company with a cash cushion.”