In a recent development that adds to the mounting unease surrounding valuations in the stock market, Alphabet, the parent company of Google, witnessed a significant 10% plunge in its shares. The drop came in the wake of Tesla's warning on valuations and underwhelming earnings results from Alphabet, leading to a swift sell-off.

The decline in Alphabet's stock marks the company's second-worst post-earnings selloff on record. The artificial intelligence super stock phenomenon, which has seen a relentless seven-month ascent, has contributed to an alarming overvaluation of companies and a vulnerability to sharp selloffs at the slightest sign of weakness.

While macro uncertainty and fixed-income stress have played their part, experts point to lofty prices as the primary accelerant behind market downturns. Michael O'Rourke, Chief Market Strategist at JonesTrading, commented that companies have been priced for perfection, making them ripe for a sharp selloff upon any indication of weakness.

The recent boom in the stock market has largely been fueled by investors ponying up more money for the same slice of profits. However, with the yields on 5% Treasuries tempting investors away, the Nasdaq 100's forward-looking price-earnings ratio has dropped from 27 to approximately 22 within just three months.

On Wednesday, the Nasdaq 100 suffered its worst day this year, with a 2.5% loss. Alphabet's disappointing cloud results overshadowed Microsoft's strong sales, causing the technology-heavy index to register its fourth drop of more than 1% in the last nine trading days. Currently, it remains down over 9% from its peak in July.

The decline in Alphabet's stock was triggered by its third-quarter revenue, which exceeded expectations, driven in part by robust advertising sales in search and YouTube. Nonetheless, investors quickly reduced the company's market value by nearly $180 billion, shedding shares that previously traded at over 21 times earnings and 6 times projected sales.

Market experts suggest that the recent focus on valuations, rather than more fundamental business challenges, presents a somewhat less traumatic scenario for investors. While Alphabet's stock drop of $13.20 on Wednesday may seem substantial, it only accounts for approximately one-quarter of the gains made earlier this year, leaving only recent investors at a loss.

Interestingly, Alphabet's selloff mirrors Tesla's experience last week. As the electric vehicle-maker fell short of consensus estimates for profit, sales, and margins in its third-quarter results, its stock price also plummeted by 9.3%. This prompted a series of price-target cuts.

Despite the recent decline in valuations since July, price-earnings ratios in the Nasdaq 100 still remain far from cheap. With the index hovering just below 22, it continues to stand well above its floor valuation of around 19 in October of last year, even amidst 10-year Treasury yields nearing 5%.

Christian Mueller-Glissmann, Head of Asset Allocation Research at Goldman Sachs, expressed concerns over weak earnings from some large-cap tech companies and the resurgence of bond sell-offs. He emphasized that equity risk premia are at multi-year lows, leaving little cushion for further rate increases or earnings disappointments.

Overall, the sharp plunge in Alphabet shares reflects growing concerns over valuations and the potential vulnerabilities of overpriced stocks. As investors grapple with the impact of high valuations, experts warn that further rate increases or disappointments in earnings could place additional strain on the market.