Reuters reported that the S&P 500 information technology sector traded at a lower earnings valuation than the full index on Nov. 5, focusing attention on whether AI investment will deliver expected profits.
Using LSEG Datastream figures, Reuters put the sector’s forward earnings multiple at 17.1 at the U.S. close, against 17.9 for the S&P 500. Reuters said the sector had not traded at a discount on this measure since 2017.
A forward earnings multiple compares share prices with profits projected for the next 12 months. It can fall when share prices decline, when profit forecasts rise or through a combination of the two. The ratio alone cannot show whether those forecasts will hold up.
Truist Wealth Chief Investment Officer Keith Lerner and analyst Jake Reid wrote in an Oct. 30 note that investors were weighing AI spending against the cash and earnings it may eventually produce. Their note said analysts had lifted technology profit forecasts by about 17% over the preceding three months. “The key risk is earnings estimates,” Lerner and Reid wrote.
CoreWeave Inc. reported $2.575 billion in revenue for the quarter ended June 30, alongside a $626 million net loss and $640 million in net interest expense. The company estimated its revenue backlog at about $104 billion at quarter-end, subject to requirements to deliver services and make them available.
AI-related hardware sales grew at two other companies. Nvidia reported $89 billion in Data Center revenue for its fiscal second quarter ended July 26, up 117% from a year earlier. Dell Technologies reported $16.4 billion in AI-optimized server revenue for its fiscal second quarter ended July 31, double the year-earlier amount.
The sector valuation does not cover all large AI investors. Reuters noted that Alphabet, Amazon and Meta Platforms are assigned to other S&P 500 sectors, leaving their shares outside this comparison.
Nvidia has scheduled its fiscal third-quarter earnings call for Nov. 17 at 5 p.m. ET. Dell lists a fiscal third-quarter results event for Nov. 24 at 4:30 p.m. ET.
The next scheduled releases come Nov. 10. The Bureau of Labor Statistics (BLS) is set to publish the October Consumer Price Index (CPI) at 8:30 a.m. ET, and CoreWeave plans its third-quarter earnings call for 5 p.m. ET.
