The Nasdaq fell into a technical pullback, the valuation premium of technology stocks is almost "zero", and Wall Street is calling it a "buying opportunity".

The sharp decline in large tech stocks has pushed the Nasdaq 100 index into a technical pullback, and the market is showing some signals that have historically indicated a reversal in the sector's trend. The most critical signal is that the valuation premium of large tech stocks relative to the overall market has been significantly erased. Based on historical experience, this kind of valuation compression often sets the foundation for outperformance of the sector in the market. Since hitting a historical high in October last year, this tech-heavy index has fallen by 11%. Currently, its forward price-to-earnings ratio is about 21 times (based on the next 12 months of earnings), only 1.7 percentage points higher than the S&P 500 index. Market compilation data shows that the probability of such a narrow valuation gap occurring has been one in four since the bursting of the internet bubble in the early 21st century. The last time the valuation premium of the Nasdaq 100 index relative to the overall market fell to such a low level, the index outperformed the S&P 500 index by a record margin in the following year. Of course, the economic uncertainty brought about by the Iran war may render many previously effective market signals ineffective. Only time will tell whether this signal will also fail. Nevertheless, the long history of large tech stocks as market leaders and profit engines has prompted many Wall Street strategists to closely watch the accumulating oversold signals and recommend the sector as the best current allocation direction. "The pullback in tech stocks is a positive signal that will create buying opportunities within the sector," said Michael O'Rourke, Chief Market Strategist at Jonestrading Institutional Services LLC. "Investors should take this opportunity to select stocks in companies with strong fundamentals." Since hitting a peak in October last year, tech stocks have continued to be under pressure, with concerns growing about whether the massive investments in artificial intelligence will yield returns. The recent escalation of tensions in Iran has further dampened risk appetite. The Nasdaq 100 index officially entered a technical pullback last Friday (falling at least 10% from its high), the first time since April 2025 when Trump's tariff policy pushed US stocks to the edge of a bear market. While predicting the exact turning point is difficult, history shows that oversold conditions often provide attractive entry points for investors: the last time the valuation premium of the Nasdaq 100 index relative to the S&P 500 index fell to such a low level was in September 2013, and the index then had its best quarterly performance relative to the S&P 500 index in six years. "We are bullish on large tech stocks," said Julian Emanuel, Chief Stock and Quantitative Strategist at Evercore ISI. He asserts that the AI revolution will accelerate in 2026 and points out that the price-to-earnings ratio chart of the Nasdaq 100 index relative to the S&P 500 index is very attractive. "Of particular note is that the valuations of many tech stocks are now below their levels during the pandemic." Several other Wall Street professionals are also buying oversold tech stocks on dips, including Christopher Harvey of CIBC Capital Markets. He mentioned tech giants such as Alphabet Inc., Apple Inc., NVIDIA Corporation, and Palantir Technologies Inc. Ohsung Kwon of Wells Fargo & Company Securities expects the Nasdaq 100 index and mega-cap tech stocks to outperform the overall market. Data from Deutsche Bank Aktiengesellschaft shows that the relative performance strength of tech stocks is at the bottom of a ten-year trend channel, with investor holdings significantly below average at the 28th percentile. Among the "Big Seven" in the US stock market, including NVIDIA Corporation (NVDA.US), Microsoft Corporation (MSFT.US), Apple Inc. (AAPL.US), Alphabet (GOOGL.US), Amazon.com, Inc. (AMZN.US), Meta Platforms (META.US), and Tesla, Inc. (TSLA.US), all stocks have fallen by at least 10% from their historical highs. "The decline in tech stocks compared to other sectors has been more severe, and recent holdings are quite weak, which I believe increases the likelihood of a technical rebound," said Kevin Gordon, Head of Macro Research and Strategy at Charles Schwab Corp. "The risk is that optimistic earnings expectations have not yet reflected the impact of a prolonged war." "In a more dire scenario," he added, "the defensive properties of tech stocks will weaken, and investors may turn to more traditional defensive sectors."