Valuation concerns behind capital rotation—Nasdaq faces a critical moment of re-pricing by the end of 2025

The Contradiction Between Tech Stocks’ Weighting and Profitability

The recent Nasdaq trend provides a typical example of market capital rotation. According to the latest data, as of Q3 2025, tech companies account for only 20.8% of overall corporate profits but contribute approximately 31.1% of market value. This imbalance is prompting the market to reassess the rationality of Tech Stocks valuation.

Currently, the forward P/E ratio of Nasdaq is about 29.3 times, far above the average of 23–24 times over the past decade. Driven by expectations of rate cuts and the AI concept, Tech Stocks have short-term support, but this support is based on “future growth promises.” If these promises fall short of expectations, risks will emerge accordingly.

The Tug of War Between Rate Cut Expectations and Policy Uncertainty

The three major US stock indices have risen for four consecutive trading days recently, with Nasdaq accumulating a gain of about 4.2% this week, closing up 0.8% at 23,214.69 points. The direct driver of this rise is the decline in US bond yields and the market’s high betting on rate cuts in December.

According to the interest rate futures market, investors have priced in about an 80–85% chance of a rate cut in December. However, bond market movements and Federal Reserve officials’ statements are not fully synchronized. Increased bond market volatility and a significant rise in interest rate option trading volume indicate that some institutional investors are hedging against scenarios where policy does not meet expectations.

The Next Step in Capital Rotation

As valuation pressures on Tech Stocks gradually surface, signs of market capital rotation have become clear—some funds are shifting from Tech and growth stocks to more defensive assets such as value stocks, energy, industrials, and bonds. This not only reflects caution about short-term risks but also signals a market re-evaluation of risk-reward ratios.

For portfolios heavily weighted in Tech Stocks, this rotation means a dual test of liquidity and valuation. If AI momentum does not meet expectations, Nasdaq could face a 5–10% mid-line correction. Rather than viewing this as a downside risk, it is better seen as a necessary process of market re-pricing.

The End-of-2025 Three-Dimensional Revaluation Window: Valuation, Earnings, and Liquidity

Nasdaq is currently at a crossroads of “high valuation × high interest rate expectations × AI growth anticipation.” Over the next 1–3 months, the direction of interest rate policies, corporate earnings reports, and capital flows will jointly determine the medium-term market trend.

For risk-tolerant investors who are optimistic about the long-term prospects of Tech and AI, this capital rotation and market adjustment may be a rare strategic deployment period in recent years. The key lies in accurately assessing one’s risk tolerance and having a deep understanding of the fundamentals of the tech industry.