The chart that should concern Internet investors

Have Internet stocks become dangerously overvalued? That's what one striking chart may indicate.

Comparing the valuation of Internet stocks to the valuation of the tech space as a whole, Cowen's David Seaburg found that Internet stocks are trading at a much greater premium than is typical.


While the price-to-earnings ratio of Internet stocks tends to be rich compared to those of the tech sector as a whole, that premium is especially strong now. 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."

The generally bullish Seaburg, however, 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," he said.

Noting the underperformance of the tech sector as a whole, Wald said that he sees "plenty of catch-up potential."


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