Global technology has experienced one of its weakest periods of relative performance versus the broader market since the early 1970s, as measured by World Tech returns against World ex-TMT. The sector entered 2025 with sharp underperformance following the release of DeepSeek, which raised concerns around the durability of competitive moats. This was followed by a brief recovery on solid earnings, before a renewed selloff driven by hyperscaler capex concerns and rising geopolitical uncertainty. More notable than the drawdown itself is the scale of the valuation reset that has followed.
What makes this episode particularly unusual is that global underperformance has occurred alongside exceptionally strong earnings growth — particularly in the U.S. U.S. Information Technology is expected to deliver approximately 44% year-over-year EPS growth in Q1 2026, accounting for nearly 87% of total S&P 500 earnings growth over that period, with AI-related infrastructure spending alone estimated to contribute roughly 40% of full-year index-level EPS growth. The result is a record gap between price performance and underlying fundamentals, a divergence that has rarely persisted for long.
Globally, valuations now reflect a markedly pessimistic outlook. On a forward P/E basis, global Information Technology trades below consumer discretionary, consumer staples, and industrials — sectors that have historically commanded lower multiples due to their inferior growth profiles. The global PEG ratio for technology has fallen below that of the broader market, while trailing multiples have compressed to levels last observed at the trough of the dot-com correction. This environment does not resemble a speculative unwind. Today’s dominant technology companies trade at less than half the forward multiples seen at the dot-com bubble’s peak, and equity issuance remains subdued, in sharp contrast to the roughly 500 U.S. IPOs that preceded its collapse.
Within this broader reset, the opportunity set varies by geography. In the U.S., the valuation premium of the hyperscalers has compressed to near parity with the rest of the S&P 500, while U.S. TMT valuations have reverted to their long-run relationship with return on equity. In Asia, the reset has been even more pronounced. APAC software and services companies are trading near the fourth percentile of their valuation range since 2015, while upstream memory names represent some of the most compelling dislocations. Taiwan, South Korea, and China carry the highest net AI-levered exposure at approximately 72%, 34%, and 24%, respectively, suggesting the region is better positioned to benefit from continued AI infrastructure buildout than current valuations imply.
The combination of strong earnings momentum, historically depressed valuations, and a structural AI tailwind in its early stages presents a rare alignment of fundamentals and price — one that merits close attention from investors considering sector positioning.
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