Wall Street valuations show hyperscalers trading at lower forward P/E ratios than retailers

Costco and Walmart are trading at forward price-to-earnings (P/E) ratios of 44 and 41, respectively, which exceed the average forward P/E of 20.7 for the five leading hyperscalers—Microsoft, Amazon, Alphabet, Meta and Oracle—according to a new S&P Global Market Intelligence analysis. The hyperscalers, which report an average revenue growth of about 21%, are therefore valued more cheaply than the slower-growing retailers.

The valuation gap is attributed to two main factors. First, free cash flow at the large technology firms is declining while capital expenditures are rising, prompting investors to question whether current multiples are justified given more modest growth expectations for AI-related revenue. Second, analysts note that investors anticipate a potential reduction in capex by 2027, which could temper growth prospects for the AI-focused companies.

The broader AI trade experienced a sharp sell-off on Friday, erasing more than $1 trillion in market value as concerns over weakening cash flow profiles grew. > "This is not the time to panic and sell all the tech winners and head into the bunker," said Dan Ives, a partner at Yorkville Ives. He added that despite the week’s volatility, enterprise AI buildouts remain validated, though ongoing fundraising by tech firms through bonds, equity offerings and other mechanisms is adding pressure to the sector.