The Big Seven is leading U.S. stocks to new highs again—after the valuation reset, has the P/E ratio already fallen back to a reasonable level?

U.S. stock markets hit new highs again recently, driven mainly by a strong rebound in large-cap technology stocks. Despite current global macroeconomic headwinds, including heightened geopolitical tensions in the Middle East and inflation pressure, the S&P 500 index has still shown resilience, supported by tech giants. Since the end of March 2026, the total market value of the “Magnificent Seven” has risen significantly, offsetting some of the prior losses, and the price-to-earnings ratio has also, after this wave of sell-off, returned to a more reasonable level.

The Magnificent Seven lead the broader market to yet another new high

Since the S&P 500 index bottomed out at the end of March 2026, the technology sector has become the market’s leader. The index tracking the “seven major tech giants” is up 20%, reversing the decline of 17% from last October’s peak. According to Bloomberg data, over the course of a few weeks these seven companies added roughly $4 trillion in market value to the market. Professional institutions point out that part of this rally is a “late catch-up” trade involving capital; institutional investors have been adjusting their positions in response to market changes, thereby boosting the performance of the overall index. The strong return of large technology stocks has pushed the S&P 500 and the Nasdaq indexes to new highs last week.

Macroeconomic headwinds and defensive positioning in the market

Although tech stocks have performed exceptionally well, there has been no major change in company fundamentals in the short term. Tense geopolitical conditions in the Middle East continue to pose a potential threat to global economic development. In addition, elevated energy prices have made inflation pressure persistent, testing the policy choices of central banks around the world. Amid overall economic uncertainty, tech giants—backed by their massive cash flows and dominant market positions—are instead becoming defensive targets for capital seeking stable returns.

Valuation reassessment and expectations for future corporate earnings

After the prior sell-off wave, the valuations of large-cap tech stocks have returned to more reasonable levels. Excluding extreme value cases like Tesla, the current estimated price-to-earnings ratio for the seven tech giants is about 24x, down from 29x at the end of last October, and only slightly higher than the S&P 500 index’s current 21x. Take Microsoft as an example: its estimated P/E has fallen to 23x, below the average value over the past decade. Market expectations put the seven giants’ expected profit growth rate this year at as high as 19%, better than 17% for the other components of the S&P 500, indicating that their long-term earnings capability has support.

AI capital expenditure pressure and validation of investment returns

The market’s main current concern lies in the massive capital expenditures (CapEx) in the artificial intelligence (AI) sector. It is estimated that the combined capital expenditures of Amazon, Microsoft, Alphabet, and Meta—the four major tech giants—will rise to $618 billion in 2026, compared with $376 billion in 2025. Investors continue to watch when the return on investment (ROI) from these high levels of spending will become tangible. However, as companies begin deploying AI technologies to improve internal efficiency and gain initial validation, some market participants believe such spending is reasonable, and that existing business profits also provide sufficient margin of safety.

This article, “The Magnificent Seven lead U.S. stocks to another new high—after a valuation reassessment, the P/E ratio has fallen back to a reasonable range?” first appeared on Lianxin News ABMedia.