By Paul R. La Monica

Big Tech stocks may have a big problem -- they're too big. Investors could decide that they deserve to trade with a "conglomerate discount," adding to the headwinds they already face.

Remember the conglomerate discount? General Electric, Tyco, and Vivendi were once sprawling empires with many disparate business lines. Their stocks traded at lower valuations than their pure-play peers because investors felt the conglomerates were more unwieldy. Today, Amazon.com, Microsoft, Apple, and Alphabet are sprawling conglomerates as well -- but they fetch a premium to the market. The Roundhill Magnificent Seven exchange-traded fund is valued at just under 30 times earnings estimates for this year, compared with a price/earnings ratio of 22 for the S&P 500, even after dropping 2.2% this past week.

That may need to change. In a recent report, Research Affiliates' Que Nguyen and Noah Beck note that these "modern conglomerates" are getting a 70% "diversification premium" to the valuations of their individual businesses, compared with a typical 15% conglomerate discount of old.

Nguyen and Beck suggest that the premium for megacap tech conglomerates could be warranted, especially if it's a bet that they could win the artificial-intelligence race. But it may be a mistake to assume these companies can hold on to this edge indefinitely.

GE is a perfect example. After the stock began to underperform, the company eventually broke up into pieces, including the NBCUniversal media arm and most of GE Capital, and ultimately splitting into three separate companies. "Valuations start to turn when companies get so big that they deplore capital poorly," Nguyen says . "The old conglomerates found that generating organic growth was difficult."

This isn't to say that today's tech titans are doomed to the same fate. But it is worth noting that the Mag Seven ETF is down 6% year to date. Amazon is arguably the most diversified tech company, owning AWS, Prime Video, MGM Studios, Whole Foods, Amazon One Medical, and the legacy e-commerce business. It has fallen nearly 15%. "Amazon is further along in conglomerization, and that may not always add value," Nguyen says. This is clearly a concern for Microsoft, Alphabet, and Apple too, because they have all expanded beyond their core businesses, she noted.

Investors have also suddenly become more doubtful about how much money these companies can continue to spend on AI. Matthew McLennan, head of the global value team at First Eagle Investments, said at a recent investor event that big techs are using so much of their cash flow on capital expenditures that growth will have to eventually decelerate. "This is something the market will have to digest," he says, adding that there is "much promise but also much uncertainty" for AI.

In fact, AI could swamp all the other businesses at Amazon, Microsoft, Alphabet, Apple, and Facebook owner Meta Platforms, notes Anthony Saglimbene, chief market strategist at Ameriprise Financial. "Their stocks have reflected the AI buildout," he says, adding that valuations could continue to contract as bubble fears grow.

Saglimbene doubts that any of these companies will be forced to consider divesting assets soon. But only time will tell. GE was once considered invincible -- until it wasn't. As Nguyen and Beck note in their report, "Market history suggests the competition always catches up."

And the bigger they are, the harder they fall.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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February 13, 2026 11:54 ET (16:54 GMT)

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