High valuation levels of technology stocks: what does this mean for the investment portfolio?

High valuation levels of technology stocks: what does this mean for the investment portfolio?

According to a report by www.wiwo.de, there are currently doubts about the valuation level of the S&P 500 Index. Technology stocks, particularly the so-called “Big Seven” – which include companies such as Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – are particularly expensive and are primarily responsible for the high average valuation. Some of their P/E ratios for 2024 are beyond the 50 mark, with an average P/E ratio of almost 40. This leads to a certain unfairness compared to the other 493 companies in the index.

The overvaluation of technology stocks could potentially lead to the formation of a bubble as prices are no longer justified by actual company profits. If there were a sudden drop in technology stocks, it could have a significant impact on the entire market.

Additionally, investors who invested in technology stocks due to inflated valuations could suffer significant losses if prices correct. This could lead to general uncertainty in the markets and have a negative impact on investor confidence.

It is therefore advisable for investors to diversify their portfolios and not rely exclusively on highly valued technology stocks. Wider diversification provides protection against the potential risks associated with the overvaluation of technology stocks.

Current developments on the stock market show that risk management and a forward-looking investment strategy are of great importance for investors. It is important to closely monitor market conditions and respond accordingly to minimize potential losses.