The US stocks investors have stopped paying up for

Related news

• 12 November 2026

  What do the letters in fund names mean and which version should I pick?

  7 min read

  Author

  Shares magazine

• 12 November 2026

  What is behind GSK’s valuation gap to its rivals?

  7 min read

  Author

  Shares magazine

• 12 November 2026

  Are ETFs always cheaper? Ongoing charges and trading costs explained

  7 min read

  Author

  Shares magazine

View more

Shares Magazine

12 November 2026

Download the latest edition Read page flip version

The recent market volatility, centred around the AI sector, has had a significant impact on company valuations. As investors have reassessed the risks and benefits of the artificial intelligence push, so the price they are willing to pay for a piece of the participants in it has fallen.

One way to measure this is through the price to earnings or PE ratio. A key benefit of this valuation metric is its simplicity, calculated by dividing the current share price by the earnings per share. While you can use historic earnings, it is typically more useful to use forecast data. After all, markets are more focused on the future than the past.

What a PE tells you

A PE effectively tells you the number of years it would take for a company’s cumulative earnings to equal its current share price (albeit on the unlikely assumption those earnings remained entirely flat and were paid out in full).

However, in isolation, this information is not particularly helpful. That’s because a PE is a relative valuation tool. Comparing it against the wider market or other firms in a similar sector can give you a better sense of whether the valuation is anything out of the ordinary.

Another yardstick to measure a current PE against is the long-term average. If the former is significantly below the latter, it can imply a shift in the market’s attitude towards a stock. This is sometimes called a derating, the opposite of a rerating where the price to earnings ratio moves higher.

Using a market screening tool, we have identified stocks in the US which are trading on at least a 20% discount to their 10-year average PE based on their PE for the current financial year.

A derating in tech

Starting in the technology sector, a key source of much of the recent turbulence in financial markets, there is clear evidence that investors are unwilling to pay as high a multiple as they did in the past for at least some technology and AI names.

AI chip leader Nvidia, which is battling internal and external problems, is perhaps the highest profile example. It trades at a substantial discount to its long-term average PE at 20 times forecast earnings for the 12 months to 31 January 2026. Using forecasts for the January 2027 financial year, Nvidia is trading on less than 12 times earnings.

Another thing a derating might tell you, and this may be at work with Nvidia, is that investors are now more sceptical about a company’s ability to hit earnings forecasts, particularly for future years where there are no actual earnings to lend estimates greater credibility.

Both Google-owner Alphabet and Amazon are also trading at material discounts to their long-term average PEs, as investors grow concerned about their ability to generate a return on their huge investments in AI and as the quality of earnings is affected by the pressure on cash flow which results from this spending.

The deratings at these tech giants are nowhere near as acute as at Seagate Technology. The memory chip play was caught up in the extraordinary surge in demand for its products associated with the AI roll-out but the share price has subsequently halved from its 52-week highs above $1,000 as doubts about the sustainability of artificial intelligence spending have set in.

On the flipside, companies like create software firm Adobe and customer management specialist Salesforce have derated in part thanks to concerns about AI disruption. With narratives about a so-called ‘SaaS-pocalypse’, where traditional software firms are barged aside by new AI models, gaining traction earlier this year.

It’s not just AI

It’s not only in the AI space that the US market has seen big deratings, some of which have taken place over a longer timeframe than others. Digital payments business PayPal has been hit by increased competition in its core market and as some of the pandemic-era exuberance around e-commerce faded.

Media giants Disney and Netflix have also been heavily derated. The streaming market has become increasingly competitive and saturated, and Disney has struggled with its traditional network TV operations.

At Netflix the derating is exacerbated by the fact its profitability only began to really mature in recent years.

A high PE can reflect both a high price but also lower earnings, and Netflix earnings were constrained as it spent heavily on content to establish itself in the entertainment landscape. More recently, doubts about its growth strategy following an ultimately fruitless pursuit of Warner Bros Discovery (now merged with Paramount to create Skydance) have started to build.

The lower PE afforded Colgate-Palmolive shows the impact on the consumer staples sector of higher interest rates and inflation. In the ultra-low interest rate environment of the 2010s, companies which could deliver steady if relatively modest growth backed by strong brands were highly prized, but improving returns for bonds and cash means this appeal has diminished. While inflationary pressures have pushed up input costs and meant households are trading down to less expensive, unbranded alternatives.