Why the Technology Sector Is Considered Expensive.

Earlier in this series, we learned which factors that are weighing on the software and technology sectors. The technology sector continues to be one of the S&P 500’s most expensive, as evident by its high PE (price-to-earnings) ratios. Let’s see why. The growing cloud adoption has made enterprise software companies make a rapid transition towards the cloud. As a result, dominant cloud players such as Amazon (AMZN), Microsoft (MSFT), IBM (IBM), Google (GOOG), and Oracle are pouring billions of dollars into servers, data centers, and other IT infrastructure. As technology companies continue to invest in servers and infrastructure, these funds need to be depreciated over time. We know that depreciation reduces earnings, so technology companies report lower earnings in the short term. However, they will benefit over the longer term from these investments.