Investors may want to be careful when buying technology stocks, as some companies in the sector have become overvalued after recent gains. The Technology Select Sector SPDR Fund (XLK) and the tech-heavy Nasdaq Composite Index are both up about 18% this year, with XLK soaring nearly 10% in the past month alone. The S&P 500 has jumped to a record high this year along with the Nasdaq, up 14%. Additionally, the CNBC Magnificent 7 Index is up nearly twice as much as the XLK and Nasdaq so far this year, up about 35%. However, strong growth in the technology sector has led to sky-high valuations for some companies in the space. CNBC Pro screened FactSet data for stocks with XLK mid-to-forward price-to-earnings ratios higher than those of the S&P 500. We then filtered out stocks that are trading above their respective five-year average forward price-to-earnings ratios and are up at least 14% year-to-date, outperforming the broader index. Take a look at the list of companies below: Advanced Micro Computer has been one of the biggest recipients of Wall Street’s artificial intelligence craze and may be overvalued. The stock’s forward price-to-earnings ratio is 23.4, nearly double its five-year average price-to-earnings ratio of 12.6. Barclays remains bullish on the stock, giving it an overweight rating. The company said in a report on June 6 that it expects Supermicro’s AI server market share to grow to nearly 25%. While the stock is down more than 23% so far this quarter, the stock is set to rise more than 170% in 2024. The stock’s forward price-to-earnings ratio is 59% higher than its five-year average price-to-earnings ratio. Analysts are bullish on the stock, with nearly 63% giving it a buy rating. The chip maker’s second-quarter profit beat expectations and the company announced a 10-for-1 stock split that will take effect on July 15, sending the company’s shares up 13%. . Barclays, JPMorgan Chase, Citigroup and UBS all raised their price targets on the stock. Microsoft, another AI winner, may also be overvalued. The large-cap tech stock trades at a forward price-to-earnings ratio of 32.8 times, 13.1% above its five-year average. That said, the stock has the highest percentage of Buy ratings in the group at 81%. Jefferies ranked Microsoft as its top pick for artificial intelligence in a report on Thursday, maintaining a buy rating and a price target of $550, which implies about 25% upside potential. On Friday, Oppenheimer raised his price target on Microsoft to $500 from $450 due to rising adoption of artificial intelligence-related tools.
