US Tech Is Now Cheaper Than Europe — Here Is Why
A structural reset
US tech is now cheaper than Europe. That would have been unthinkable not long ago. Beneath the surface, positioning has collapsed, multiples have compressed sharply, and the Mag7 are no longer leading. This is the part the market is really struggling with. This is not just a correction, it’s a redefinition of what deserves a premium in an AI-first market, where future earnings, not past dominance, are being repriced.
Losers
All 7 members of the Magnificent Seven are down on the year (-5% for Nvidia to -23% for Microsoft) and underperforming the average stock in the S&P 500 (which is up 1%).
Source: Bilello
Magnificent puke
MAG7 saw the second largest selling on record during the rolling two-week period through end of last week (trailing only April 2022).
Source: MS PB
Exposure
Mag7 exposure among hedge funds is hitting a 3-year low.
Source: MS PB
The de-rating
We have seen a big de-rating across the board over the past weeks, but the Mag7 one really stands out, from 31x to 24x since January.
Source: GS
More on the de-rating
Fears of AI disruption have led to a very sharp de-rating of software and tech stocks more broadly. Not much PE premium left to erode.
Source: Datastream
Cheaper than Europe
US tech is now cheaper than the European market, at least on a PEG basis. That would have been unthinkable not long ago.
Source: Soc Gen
No bubble levels
Equity risk premium on Nasdaq is far from bubble levels according to this ERP chart from the cross-asset team at Soc Gen.
Source: Soc Gen
Why is this de-rating?
The compression of multiples for Mag7 and the overall US tech sector is significant. This is not a random move. The de-rating is systematic and it’s happening for three very specific reasons.
1 - Parabolic earnings
US forward earnings growth for the tech sector has of course been parabolic. No trees can grow all the way to the sky... Chart shows year-over-year growth in percent.
Source: Albert Edwards
Earnings inflection
What is more risky than earnings that have gone parabolic? Parabolic earnings where the inflection point just right now seems to be happening. Albert Edwards points out that the pace of upgrading has turned downwards...
Source: Albert Edwards
2 - Don't believe the FCF turnaround
Hyperscaler cash flow, revenues and free cash flow is a tale of three stories. Investors seem to currently put more emphasis of the FCF part and does not seem to believe in a forceful turnaround here.
Source: GIR
That FCF inflection
Same point as above but different chart. 2026 capex expectations have doubled, FCF negative by end of ’26. Consensus has an inflection in 2027 but it does not seem like Miss Market believes in it right now.
Source: Soc Gen
3 - Legacy Tech in an AI world
This is the part the market is really struggling with. US tech valuations haven’t compressed because the present broke, they’ve compressed because the future just got a lot more uncertain. AI is forcing a brutal repricing of business model durability, margins, and moats, with investors no longer willing to pay peak multiples for earnings that may be disrupted. At the same time, capital is being pulled aside for the next wave of mega-IPOs SpaceX, OpenAI, Anthropic, draining demand from listed names. These names also exactly represent the new AI tech world. This isn’t just a de-rating; it’s a reset of what investors are willing to pay for “legacy” tech in an AI-first world.
