The conversation around U.S. equity valuations has grown louder in recent months, with many commentators pointing to price-to-sales ratios that now sit near record highs. Historically, the P/S ratio has been a useful yardstick in moments when profit margins and earnings fluctuate, because sales provide a more stable foundation for comparison across cycles. In February 2021, for instance, the S&P 500 reached a P/S of nearly 2.95, surpassing the 2.45 peak of the dot-com era. Today, the market trades even higher, around 3.2 to 3.3 times sales, levels rarely observed in modern history. ^1
Yet while history offers caution, it also provides context for optimism. Markets in the past have sustained elevated multiples when structural growth forces were at work. Today, the profit picture for many companies (especially in technology) is robust, supported by secular trends like artificial intelligence, cloud computing, and digital transformation. Analysts note that corporate earnings and margins are absorbing some of the valuation stretch, suggesting that the market’s fundamentals are stronger than the headline ratios imply. ^2 In this light, elevated P/S ratios may reflect a re-rating of U.S. equities toward a higher baseline, much as prior technological revolutions have shifted market norms.
Looking beneath the surface also tempers some of the concern. The headline S&P 500 P/S is dominated by a handful of megacap names, which distort the aggregate figure. If the index were equally weighted, the P/S multiple would fall closer to 1.8—much nearer its long-term average of 1.4. ^3 Broader measures, like the aggregate U.S. equity market (including mid- and small-cap companies), show P/S levels of around 2.76, or 2.58 excluding financials. ^4 These levels, although elevated compared to historical norms, are far less extreme than the headline numbers suggest.
Perhaps the most important distinction lies in separating the “Magnificent Seven” from the rest of the market. These technology giants have commanded extraordinary valuations, pulling the S&P 500’s P/S higher. However, excluding them, the broader market appears considerably more balanced, trading between 1.8 and 2.8 times sales, depending on the weighting methodology. ^5 This reinforces the idea that while parts of the market are richly valued, investors still have opportunities in areas where valuations remain grounded. The narrative of an overheated market is therefore less universal than headlines imply.
1 Wall Street Journal, “U.S. Stocks Are Now Pricier Than They Were in the Dot-Com Era,” July 2025.
2 Reuters, “Lofty US stock market valuations bank on earnings strength,” July 2025.
3 Wall Street Journal, “U.S. Stocks Are Now Pricier Than They Were in the Dot-Com Era,” July 2025.
4 Aswath Damodaran, NYU Stern, “Price/Sales Ratios by Sector (US),” 2025 update.
5 MarketWatch, “The S&P 500 is at its most expensive by this measure. These stocks have bucked the trend,” July 2025.