This chart from Bernstein shows growth stocks are not extremely overvalued and can keep running

Published Tue, Sep 1 20201:43 PM EDTUpdated Tue, Sep 1 20203:07 PM EDT

(This story is for CNBC Pro subscribers only.) For investors worried that growth stocks' valuations are approaching extreme levels last seen during the dotcom bubble, Bernstein said they are looking at the wrong place. The Wall Street firm said many investors are focused on tech multiples relative to the broader market and draw comparisons to the 2000s. But due to the different macro environment, this method doesn't paint an accurate picture of the valuation of the growth sector. Instead, Bernstein said investors should look at high-growth stock valuations compared to their low-growth peers, and they are still far from the extremes of 20 years ago. "Yes, the relative multiple of high vs low Growth equities has increased but is very far from prior extremes," Inigo Fraser Jenkins, co-head of portfolio strategy at Bernstein, said in a note on Tuesday. "Moreover, the stocks in our sustainable growth basket trade at less than the market multiple because of the collapse in forward earnings for cyclical companies." The tech sector has been the best performer this year by far, lifting the broader market out of the coronavirus-induced slump. Investors flocked to big technology companies as their online businesses proved more resilient amid the lockdowns. The tech-heavy Nasdaq Composite has risen more than 32% in 2020, outpacing the S & P 500's 8% gain. The FAANG block of tech giants — Facebook , Amazon , Apple , Netflix and Google's parent Alphabet — has been the biggest leader this year. The current macro backdrop also supports growth stocks to stay in the leadership position for a longer period of time, according to Bernstein. "From a macro perspective the key reason is that real rates are likely to stay low for an extended period," Jenkins said. "The persistence of growth for high growth companies has increased in recent years.That ability to maintain superior growth along with lower discount rates means that long duration equities can maintain a high multiple." The ultra-low interest rates are particularly benefiting tech companies that rely more on borrowing to deliver superior growth. At the same time, an easier monetary policy lifted valuations across the board, leaving a smaller premium on cheap stocks and leading to underperformance of value names. After the Federal Reserve cut interest rates to near zero earlier this year to support the ailing economy, the central bank last week introduced a new approach to inflation that allows price pressures to run hotter than normal. The policy shift could mean the Fed will be even less inclined to hike interest rates. "The absolute valuation of Growth equities can be justified if rates stay at this level," Jenkins said. — CNBC's Michael Bloom contributed reporting.

FAANG stocks displayed at the Nasdaq.

Adam Jeffery | CNBC

(This story is for CNBC Pro subscribers only.)

For investors worried that growth stocks' valuations are approaching extreme levels last seen during the dotcom bubble, Bernstein said they are looking at the wrong place.

The Wall Street firm said many investors are focused on tech multiples relative to the broader market and draw comparisons to the 2000s. But due to the different macro environment, this method doesn't paint an accurate picture of the valuation of the growth sector.

Instead, Bernstein said investors should look at high-growth stock valuations compared to their low-growth peers, and they are still far from the extremes of 20 years ago.