Valuations of the major US tech companies are becoming elevated, according to UniSuper’s chief investment officer, John Pearce, but not yet at bubble territory.
Appearing on a UniSuper podcast, Pearce referenced the projected year-on-year earnings growth of the big technology companies to June 2026 such as Nvidia, Google, and Apple, with Nvidia expected to report US$87 billion in net profit and Meta to report US$72 billion.
He noted many of these companies are “chasing the AI dream” lately rather than deploying these high profits into buying back stock, raising dividends, or reinvesting in their core business in a way they would have in the past.
He said: “Valuations are getting elevated but this is cold, hard cash which is really important.
“Do we have concerns? Are we in a bubble? I don’t think we’re in a bubble but there are signs of froth and you see froth when speculative assets start getting well bid. Crypto is doing well. We see emerging markets recently outperforming developed markets. We see unprofitable tech companies outperform profitable tech companies recently, these are all signs of froth.
“Today, a lot of these [tech] profits are being reinvested in chasing the AI dream. Now, the returns for that are long-dated and they’re also quite uncertain so there is a question mark around that.”
At the $158 billion superannuation fund, Pearce said the fund is opting to limit its exposure to unprofitable technology companies, but maintains its overweight exposure to the profitable ones.
“We’re holding there, and why are we doing that? Firstly, there’s no certainty that we’re actually in a bubble, and in fact, you don’t know whether you’re in a bubble until a bubble actually bursts. Bear in mind, of course, that these companies are very profitable, and that so-called money merry-go-round can be sustained for quite some time,” Pearce said.
This money merry-go-round refers to the largest companies making deals between themselves, which causes the valuation of both companies to rise.
As well as unprofitable tech companies, the super fund is also avoiding exposure to cryptocurrency and is underweight in emerging markets.
