The one-chart argument that tech valuations have fallen too far

Tech valuations have endured stark declines this year. But after continued selling, it’s now possible to argue that the selling has gone too far — that tech valuations are now suffering more than is warranted in the wake of the 2020-2021 tech stock bubble.

U.S. stocks opened lower today again, adding to a miserable year’s trading. Technology shares, in particular, have endured a rout since reaching all-time highs in late 2021, much of which made sense.

After all, software companies saw their worth rise not only on the back of growth during the pandemic, but also thanks to expanding revenue multiples. Those multiples stretched into the stratosphere, so seeing them compress now that the market’s ebullience has worn off is what we’d expect.

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But the sell-off has now, in some cases, pulled the value of software companies below their pre-COVID price points. This means that select tech concerns are now worth less than they were before the pandemic despite having a few years of growth in the bank.

With that in mind, here’s the one-chart argument that tech valuations have paid their dues and then some since November 2021 highs:

Image Credits: TechCrunch via YCharts