Valuation Premium Fades for Big Tech Stocks as AI Costs Rise

Goldman Sachs Research has found that top mega-cap tech stocks are losing their valuation premium over the rest of the S&P 500. Historically, these companies have commanded richer multiples due to faster growth, dominant competitive positions, and enormous free-cash-flow generation.

The forward price-to-earnings multiples of the market's largest companies, including Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), and Alphabet (GOOGL), have fallen sharply and are now converging toward the valuation of the other 495 stocks in the S&P 500.

This shift is attributed to two major pressures: a higher cost of capital and dramatically greater capital intensity. The companies' massive investments in artificial-intelligence infrastructure, such as data centers, chips, and power capacity, may support future growth but consume cash today.