While the price-to-earnings ratio of Internet stocks does generally tend to be rich in comparison with the price-to-earnings ratio of the tech sector as a whole, then, that premium is especially rich at the present. Specifically, the valuation premium for Internet stock is two standard deviations above average—a condition that, by definition, should only occur some 2.5 percent of the time.
For Seaburg, this indicates that Internet stocks are now at an “inflection point.”
“The last time it was there, we saw a massive selloff in the space,” he said Friday in an interview with CNBC’s “Trading Nation.”
That said, the generally bullish Seaburg is by no means forecasting a major drop.
“I’m just suggesting that they could pull back before you step in and make a decision to actually buy these,” he said. “It’s maybe just a little bit overextended—you’ll probably see more of a near-term pullback.”
For Ari Wald, head of technical strategy at Oppenheimer, leaning toward the larger tech names would be wise.
“Some of the bigger-cap tech names probably are a little bit more attractive here,” said Wald.
Noting the underperformance of the tech sector as a whole, Wald says that he espies “plenty of catch-up potential.”