Gilead's 24% rally raises valuation questions amid $11.2B in acquisition charges

Gilead Sciences, Inc. (NASDAQ: GILD) shares have surged more than 24% since the start of the year, outpacing the S&P 500's 14% return. This performance shift has altered the company's valuation metrics, with Yahoo Finance citing a normalized forward price-to-earnings multiple of approximately 15.5 times. This figure relies on normalized earnings expectations rather than reported 2026 earnings, which are distorted by acquisition-related in-process research and development charges.

The core HIV franchise continues to drive revenue growth. In the second quarter of 2026, total revenue increased 10% year over year to $7.8 billion, while product sales excluding Veklury rose 10% to $7.6 billion. HIV product sales specifically grew 12% to $5.7 billion, with Biktarvy contributing $3.8 billion in sales, a 7% increase. These results indicate that the company's largest existing franchise is expanding without sole reliance on future pipeline products.

New regulatory approvals provide additional growth avenues. The FDA approved Yeztugo as a long-acting HIV prevention option and accepted an application for a potential once-weekly oral formulation for HIV pre-exposure prophylaxis. Gilead also secured accelerated approval for Hepcludex to treat chronic hepatitis delta virus infection in adults, making it the first and only FDA-approved treatment for this condition in the United States.

Oncology sales showed strong momentum, with Trodelvy increasing 26% year over year to $457 million in the second quarter. The FDA approved Trodelvy as a first-line therapy for specific patients with advanced or metastatic triple-negative breast cancer that cannot be removed by surgery.

However, aggressive investment in future growth has complicated reported earnings. Gilead completed acquisitions of Arcellx, Tubulis, and Ouro Medicines, resulting in $11.2 billion in acquired in-process research and development expenses during the second quarter alone. These charges accounted for approximately $9.08 per share of the quarter's loss. Reported diluted loss per share stood at $(8.45), compared with $1.56 a year earlier, while non-GAAP diluted loss per share was $(6.75).

The acquisitions are intended to complement the HIV business with new technology platforms. Tubulis brings next-generation antibody-drug conjugate technology, and Ouro adds an investigational BCMAxCD3 T-cell engager for autoimmune diseases. Conversely, cell therapy sales declined 14% in the second quarter, with Yescarta down 12% and Tecartus down 24%, primarily due to competition.

The stock's roughly 28% gain over the past year exceeds the S&P 500's approximately 15% return, reducing previous valuation cushions. Investors are now pricing in both the durability of the HIV franchise and the potential returns from billions of dollars invested in new technologies. While the 15.5x forward multiple remains reasonable for a company with double-digit HIV growth, the stock is no longer a simple value play. Future performance depends on whether these expensive pipeline investments generate sufficient returns to justify current expectations.