By Ven Ram, Bloomberg Markets Live reporter and strategist

Not since 2009 have technology stocks had such a wonderful year, but lofty valuations pose headwinds next year.

The Nasdaq 100 basket has surged an eye-popping 53% so far this year, with the gains having accelerated since the start of November thanks to markets front-running the idea policy loosening from the Fed.

If markets had already decoupled from sensible valuations, the melt-up of the past two months means that we are possibly now in bubble territory.

Looked at as a long-duration bond, the fair value of Nasdaq 100 is 12,877, with the assumptions underpinning the analysis laid out below.

As Keynes famously remarked, markets can remain irrational longer than one can remain solvent, so it’s difficult to call for a correction, but there does come a point in any bull run where valuations become so stretched as to resemble a veritable card castle.

[ZH: Nasdaq looks rich on a Price-to-Sales basis too…]

Ironically, not all rallies are made equal, and nowhere is this more evident than with the S&P 500 that has run up more than 23% this year. Despite those gains, at the current level of 4,740, the basket is trading just 2.3% above its fair value of 4,632.

* * *

So why is 12,877 fair value?

Because as Ven Ram explains, that’s what one gets when looking at the technology basket is viewed as a long-duration bond.

The analysis essentially assumes that dividends that accrue from the index will increase at a compounded annual rate of 11.4%, mimicking the growth rate over the past 10 years.

It uses a discount rate of 5% and assumes that the growth rate will slow to 5% beyond a forecast horizon of 30 years

Using a similar analysis, the fair value of the S&P 500 is 4,632, suggesting that brick-and-mortar stocks may be reflecting saner valuations.

[ZH: But the S&P still looks very rich on a Price-to-Sales basis…]

Even so, any further upside in the basket is less than 3% from last week’s closing level.

All told, valuations in technology stocks look stretched. While some enthusiasm toward stocks related to artificial intelligence may be condoned, glaring overvaluations tilt the market toward a correction sooner rather than later.