Tech Sector Valuation Check: Software and IT Services Look Cheap, Semis and Hardware Expensive

June 20, 2026 - 19:58

A fresh look at the technology sector's valuation landscape reveals a clear divide. Software and IT services companies are trading at levels that suggest they are undervalued relative to historical norms, while semiconductor and hardware stocks appear stretched.

The divergence comes after a volatile period for tech stocks. The broader market has swung between optimism over artificial intelligence and concerns about interest rates and slowing growth. But beneath the surface, the picture is not uniform.

Software firms, which saw their multiples compress sharply in 2022 and early 2023, have not fully recovered. Many now trade below their five-year average price-to-earnings ratios. Analysts point to steady recurring revenue streams and improving margins as reasons the discount may not last. IT services companies, often seen as more defensive within tech, also show attractive valuations. Their earnings have held up better than expected, yet share prices have lagged.

On the other side, semiconductor companies have ridden the AI boom to lofty valuations. Chipmakers tied to data center spending and AI accelerators command premiums that some investors find hard to justify based on near-term earnings. Hardware makers, including PC and server manufacturers, face similar scrutiny. Their stocks have rallied on AI hype, but actual demand outside of AI remains tepid.

The divide suggests that investors rotating within tech could find bargains in software and services while taking profits in semis and hardware. Of course, valuation alone does not dictate returns. If AI adoption accelerates further, expensive chip stocks could get even pricier. But for those focused on margin of safety, the current landscape offers a clear choice.