The tech sector has been booming lately. Since the January 2023 low, the Nasdaq Composite—a good measure of tech stock performance—has gained roughly 55%. Naturally, that’s got investors asking: is the tech sector overvalued?
One way to answer this is by looking at the rolling year-over-year returns for the Nasdaq Composite, which we show as the gold line in the bottom half of the chart above. Historically, we’ve found that when the Nasdaq has doubled in price over a one-year period, typically gaining around 80% to 100%, it has signaled a bubble. This occurred in February 2000, around the peak of the dot-com bubble, and again during the speculative tech bubble in March 2021.
The good news, though, is that the Nasdaq is only showing a year-over-year increase of about 36% right now. That’s a far cry from the doubling threshold we’d need to see to be concerned about a potential bubble.
To be fair, we’re not saying we can’t get there. That can certainly happen. But for now, things seem to be relatively stable and not excessively inflated.