Chart of the Week: Are US mega-cap stocks undervalued?
Opportunities emerge across US equities.
Mentioned: Apple Inc (AAPL), NVIDIA Corp (NVDA), Microsoft Corp (MSFT), Amazon.com Inc (AMZN), Broadcom Inc (AVGO), Alphabet Inc Class C (GOOG), SanDisk Corp Ordinary Shares (SNDK), Seagate Technology Holdings PLC (STX), Micron Technology Inc (MU)
This week’s insights come directly from our US research team in the North America Market Outlook Q3 2026.
The US stock market is undervalued
The U.S. stock market is trading at a slightly greater discount than at the beginning of the year, yet following significant rotations across style, capitalisations, and sectors, valuations have become more balanced. Based on a composite of our intrinsic valuations of the more than 700 stocks we cover that trade on US exchanges, as of June 30, 2026, we calculated that the US equity market was trading at a price/fair value estimate of 0.92. This indicates that the market is trading at an 8% discount to our fair value estimates.
After leading the market over the past three years, large-cap stocks lagged in the first half of 2026. Technology continues to account for the bulk of returns, and semiconductor stocks surged, but returns among mega-cap stocks such as Nvidia (NAS.NVDA), Apple (NAS.AAPL), and Amazon (NAS.AMZN) have lagged, with Microsoft (NAS.MSFT) falling significantly throughout the first half.
US wide moat stocks even more undervalued
No-moat stocks became even further overvalued. In fact, no moat stocks are as overvalued as in mid-2021, just prior to the market correction that began in early 2022. Overvaluation is concentrated in several commodity oriented tech hardware stocks. The rush to build AI data centers has led to shortages in the equipment needed to deploy AI chipsets, including memory semiconductors, networking gear, connectors, and even the CPUs to orchestrate AI workloads.
Shortages have led to substantial price increases, thus driving record margins and earnings growth. Stocks such as Micron (NAS.MU), SanDisk (NAS.SNDK), and Seagate (NAS.STX) have risen to levels well in excess of our valuations. While we forecast substantial earnings growth this year and next, we expect new supply to come online in 2028, which will dampen earnings growth thereafter. Conversely, wide moat stocks are trading at even greater discounts.
We think investors are undervaluing the long term cash flow generation potential of AI leaders such as Nvidia, Broadcom (NAS.AVGO), and Alphabet (NAS.GOOG). In addition, we think the market is overly penalising software providers for potential for AI to disrupt or displace their businesses.
