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Market Update

Are Nasdaq Stocks Really Overvalued?

The tech-focused index has hit record highs this year before a rough patch in September. How are its biggest companies valued after recent volatility?

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Tech stocks have come back to earth in September after a stellar 2020, with the Nasdaq index crashing more than 1,000 points this month. Morningstar analysts are not surprised that the big-name tech stocks have fallen back to earth, as valuations had gotten stretched to the breaking point before September’s sell-off, says managing director Dave Sekera: “Not only is it the most richly valued of all the sectors we cover, but neither it nor any other sector has ever traded at such a high price/fair value ratio since we started calculating this metric in January 2007.”

Morningstar’s fair value estimate, which feeds into the star rating for stocks, strips out market sentiment and looks at the company fundamentals, such as cash flow, debt, and profits. So just how overvalued are the top 20 Nasdaq stocks?

James Gard does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.