Tech Stocks Have Propelled the Nasdaq Closer to a Record High. Why a Bubble Is Nowhere Close.

The tech-heavy Nasdaq Composite index is near a record high once more. (Michael Nagle/Bloomberg)

The Nasdaq Composite is back near a record high, led by solid gains in Magnificent Seven members Microsoft, Meta Platforms and Nvidia this year. But let’s hold off on calling this rally another tech bubble just yet.

For one, the Nasdaq has gained only about 5.5% this year and 12% over the past 12 months. Those are hardly the types of gains that should cause people to start shouting “the end of the bull market is nigh” at the top of their lungs. The Nasdaq doubled in the 12 months ending in February 2000, the height of dot-com mania.

In fact, DataTrek Research co-founder Jessica Rabe noted in a report Wednesday that the recent tech rally is “still far from certifiable bubble status.”

She pointed out that it’s important to remember how terrible a year 2022 was for Big Tech, when the Nasdaq plunged 33%. That marked the worst annual performance for the index since the financial crisis in 2008.

Even though the Nasdaq enjoyed solid rebounds in 2023 and 2024, Rabe said that “it’s more common for the Nasdaq…to rally for 3-6 straight years than 2 years after a down year.” In other words, the tech bull market—now in the midst of year three—may have more room to run.

Rabe did say that when the Nasdaq stumbled in a potentially third year of a bull run, there were unusual circumstances that led to a market pullback, listing the 1987 Wall Street Black Monday crash, the 1990 Iraq invasion of Kuwait, and the Greek debt crisis in 2011 as examples.

The hope is that cooler heads prevail with regards to President Donald Trump’s trade negotiations with the rest of the world and that tension between Israel and Iran dissipates.

“As long as US trade/tariff policy remains measured and there’s no other economic or geopolitical shocks, history says it is reasonable to expect a +10 percent gain for the Nasdaq…this year,” Rabe wrote.

At the end of the day, top techs should continue to rally thanks to the artificial intelligence boom.

“The odds are in the [Nasdaq’s] favor to hold onto its year-to-date gains and even continue to rally in the back half barring an exogenous shock,” Rabe wrote. “Momentum is a powerful factor, especially when it’s fueled by a disruptive technology, such as gen AI.”

Several other fund managers and strategists told Barron’s that they also aren’t worried about another tech bubble brewing.

“We’ve tilted our exposure to technology,” said Alonso Munoz, chief investment officer with Hamilton Capital Partners, adding that he’s “doubled down” on top U.S. tech stocks such as Alphabet, Microsoft, Tesla, Nvidia and Broadcom.

Munoz said that in addition to being companies with strong growth potential, he thinks many Big Tech names have strong balance sheets that should protect them if there is more economic and market volatility.

“If you have to be in equities, be parked in the best, the ones with wiggle room to weather economic conditions,” he said.

Nitin Sacheti, a portfolio manager and chief investment officer with Papyrus Capital GP LLC, a long-short investment fund, also likes tech due to the AI trade. He owns hard drive companies Western Digital and Seagate.

“We have a massive AI cycle and the more ChatGPT queries we do, the more we need to store,” Sacheti told Barron’s. Both stocks are relatively cheap, too, with Western Digital trading at about 12 times 2026 earnings estimates and Seagate valued at just 15 times next year’s profit forecasts.

But what about the rest of the tech sector’s valuations? Should investors be concerned that the market might be looking too frothy?

The S&P 500, which has a heavy concentration in the group of Magnificent Seven stocks, now trades at 21 times forward earnings estimates, above its 5-year average. The Nasdaq 100 has a P/E of 26, while the Roundhill Magnificent Seven exchange-traded fund is trading at just under 30 times earnings estimates.

Eddie Ghabour, CEO of Key Advisors Wealth Management, isn’t concerned. He thinks the tech sector—and semiconductor and other AI-themed stocks in particular—will continue to lead.

“It’s tough for the market to not keep going higher and not have megacaps like Nvidia and Broadcom going with it,” he said, adding that “stocks can get overbought in bull markets.” His firm owns Nvidia and Broadcom, as well as the VanEck Semiconductor ETF and big data leader Palantir.

“You have to respect momentum. There is no catalyst for it to stop since the AI revolution is likely to continue,” he said. “There are times in the market where valuations don’t matter.”

That may be scary to hear. But it’s a common maxim on Wall Street that valuations aren’t a great short-term timing tool. Investors may have to hold their nose and keep buying, despite the market’s lofty multiple.

Write to Paul R. La Monica at paul.lamonica@barrons.com