Valuation Anxiety: Are Tech Stocks Overvalued After the Fed Rate Cut in September 2025?

Tech stocks surged after the Fed’s September 2025 rate cut, pushing P/E ratios above historical averages. This article reviews valuation risks, expert analysis, and investor strategies.

When the Federal Reserve delivered its first rate cut of 2025 in September, lowering rates by 25 basis points, markets celebrated. The S&P 500 and Nasdaq surged to record highs, fueled by optimism that lower rates would extend the bull market.

Yet many analysts now ask: are tech stocks overvalued after the Fed rate cut? Valuation anxiety is growing as trailing and forward P/E ratios climb well above historical averages. For investors, the key question is whether this is sustainable or if the market is entering overheated territory.

How the Fed’s September 2025 Rate Cut Triggered a Tech Rally

Lower rates boost the present value of future earnings, benefiting growth stocks. After the Fed’s September move, semiconductor leaders like Intel and Nvidia jumped, while the Nasdaq and Russell 2000 outperformed. This reaction reinforced why tech remains the primary beneficiary of the Fed easing cycle.

Valuation Metrics Indicate Overvaluation in Tech Stocks

Recent data show the S&P 500 information technology sector P/E ratio at 37.7x, compared with its five-year average of 30.4x. The forward PE ratio is 30.5x, meaning future growth is already priced into valuations. Meanwhile, the overall US stock market trades at 26.9x, also above its long-term average.

Comparison Table: Tech Stocks vs. Overall Market Valuation

These metrics highlight why many investors are concerned about tech stocks being too expensive post rate cut.

Expert Warnings on Valuation Risk in Tech

VoxEU argues that large tech firms are pricing in unrealistic profit growth, diverging from fundamentals. Reuters notes that the IT sector’s average P/E has broken into the top historical range. Morgan Stanley warns that although the Fed’s easing cycle adds liquidity, weak labor data or sticky inflation could quickly shift sentiment. Together, these insights show that valuation anxiety is justified.

What Valuation Pressure Means for Growth Stock Investors

When valuations are stretched, even minor earnings misses can cause sharp sell-offs. Tech investors face higher risks in this environment, especially if the Fed cannot continue cutting rates. However, not all companies are equally vulnerable. Firms with strong cash flow and proven business models remain more resilient, making selective stock picking and diversification essential.

Key Events and Risks to Watch After the Fed Easing Cycle

• Future rate cuts: Analysts, including Nomura, expect more Fed easing in October and December 2025.
• Economic indicators: CPI, Core CPI, and labor reports will guide how long the easing cycle continues.
• Earnings season: Q3 and Q4 reports from AI and semiconductor companies will test whether current valuations are justified.
• Risks: Inflation surprises, US-China trade tensions, and geopolitical instability could undermine growth stocks despite Fed policy support.

Tech stocks have rallied strongly after the Fed’s September 2025 rate cut, but valuations suggest overheating. With the S&P 500 IT sector’s trailing and forward PE ratios above historical norms, the risk of corrections is rising.

Investors should remain cautious. Selective stock picking, diversification, and close monitoring of inflation and earnings data are critical strategies.

References

• Morgan Stanley Insights, Fed Rate Cut 2025 and Market Outlook
• Reuters, Wall Street rallies after Fed signals more cuts; Intel surges
• Reuters, US sectors to watch as Fed begins easing cycle
• WorldPEratio, S&P 500 Information Technology Sector Valuation
• MacroMicro, Forward P/E Ratio – IT Sector
• VoxEU, Unpacking US Tech Valuations