It would shock you how bearish Wall Street is on hyperscalers Microsoft, Amazon, Alphabet, Meta, and Oracle

Costco (COST) and Walmart (WMT) are trading at fatter price-to-earnings (P/E) ratios than every single major high-growth hyperscaler: Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), Meta (META), and Oracle (ORCL).

Looking to get a sense of how bearish Wall Street has quickly gotten on the AI trade? This data point is it!

278.22 -4.10 (-1.45%)

At close: October 30 at 4:00:01 PM EDT

279.89 +1.67 (+0.60%)

Pre-Market: 7:41:40 AM EST

Hyperscalers with an average revenue growth of 21% are trading at an average forward P/E ratio of 20.7, according to a new analysis from S&P Global Market Intelligence (chart below). Costco and Walmart trade at forward P/E ratios of 44 times and 41 times, respectively.

Looked at another way, S&P points out the market is paying up to own slower growers rather than the companies that are supposed to cash in on the AI boom.

Hyperscaler valuations get hit hard hard.
Hyperscaler valuations get hit hard hard.

The valuation disconnect boils down to a couple of factors.

First, free cash flow is drying up at Big Tech leaders such as Alphabet, Meta, and Amazon, and capex is going up dramatically. Investors are questioning whether this ratio is totally out of whack given more realistic growth projections around AI.

Second, there is concern these hyperscalers will have to cut back on capex in 2027 to appease nervous investors. That could mean slower-than-expected growth for top AI names.

The AI trade saw a serious slamming on Friday, with more than $1 trillion in market value wiped away as investors fretted about the weakening cash flow profiles of Big Tech.

“This is not the time to panic and sell all the tech winners and head into the bunker,” Yorkville Ives partner Dan Ives said. “As painful as this week is the underlying signs from enterprise AI buildouts are actually more validated than a week ago … given what we heard front and center from the hyperscalers combined with last week’s Meta and SpaceX numbers. That said, tech players raising money via the bond market, equity offerings, ATMs, etc has put further pressure on the sector and adding to the overhang seen this week.”

Brian Sozzi is Yahoo Finance’s Executive Editor, host of the Sozzi Unleashed morning show, the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team.

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