(Bloomberg) — The “stubbornly elevated” stock valuations of the likes of Apple Inc., Tesla Inc. and Amazon.com Inc. may not last for long, according to Deutsche Bank AG strategists.
A basket of these megacap growth and technology stocks trades at a 60% premium to the rest of the S&P 500 Index even though their earnings are growing no faster than the others, strategists led by Binky Chadha said in a note. The bank’s model suggests the premium should be about 40% based on the companies’ earnings growth, leverage and payout ratios, they said.
Tesla shares trade at 86 times and Nvidia Corp. at 48 times forward earnings, scanning as the most expensive among the cohort of dominant technology companies in the U.S., according to Bloomberg data.
Chadha said he expects those valuations to dip either via faster relative earnings growth or price underperformance. He noted that average analyst expectations so far don’t point to growth beating the rest of the market in 2022.
Indeed, last week Amazon and Facebook-owner Meta Platforms Inc. both gave revenue projections below estimates. Those results met with contrasting extreme reactions: Meta stock saw a record plunge, while Amazon registered the biggest one-day market value gain for a U.S. company after sales in its cloud computing business beat Wall Street estimates and the company raised the price of Amazon Prime subscriptions.
Apple, Amazon and Google owner Alphabet Inc. are down less than 4% for the year even as a surge in U.S. Treasury yields dented stock prices of pricier technology companies. The industry rout this year follows an extended period of outperformance related to both pandemic-era growth and low rates.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
