U.S. technology shares remain central to stock market direction amid AI selloff

Traders Union
All News
Stocks
U.S. tech shares guide market

Highlights

S&P 500 technology sector posts biggest one-day drop in over six years this week, with sector still accounting for more than 35% of the index.
Despite this pullback, technology stocks have risen more than 200% since October 2022, outpacing the S&P 500's nearly 100% gain, while the sector leads with an 11% advance YTD.
Tech sector's forward P/E ratio at 17.1 now sits below the S&P 500's 17.9 for the first time since 2017, as investors eye catalysts like Anthropic's IPO and Nvidia's upcoming results.

Tech weighting keeps market exposure high

As reported by Reuters, the recent month-long decline in technology and AI-related stocks culminates this week in the biggest one-day drop for the S&P 500 technology sector in more than six years, as investors worry Democratic midterm election victories could slow data-center spending that has underpinned the market rally.

Even after the pullback, technology remains the largest sector in the S&P 500 by a wide margin, accounting for more than 35% of the index as of Thursday's close. Robert Pavlik, senior portfolio manager at Dakota Wealth Management, says weakness in AI is likely to weigh on the broader technology sector and, in turn, drag on the benchmark index because of the sector's heavy influence.

The sector's share of S&P 500 market capitalization remains above the level reached at the height of the internet bubble in 2000. AI's market impact also extends beyond the formal technology sector because major data-center spenders such as Alphabet, Amazon and Meta Platforms sit in other parts of the index.

Valuations ease as investors await catalysts

The sector's dominant market position reflects gains accumulated during the U.S. bull market that begins in October 2022. Despite the latest slide, technology has still risen more than 200% over that period, nearly twice the advance of the broader S&P 500, while several AI winners continue to post strong gains in 2026, including Sandisk, Dell Technologies and Micron Technology.

As stocks recover somewhat on Friday, the S&P 500 is up nearly 8% for the year and the technology sector is ahead by about 11%. Chuck Carlson, CEO at Horizon Investment Services, says investors in profit-taking mode still have gains available to lock in.

Valuations have also become less stretched on the surface. According to LSEG Datastream, the technology sector's forward price-to-earnings ratio falls to 17.1 as of Thursday after topping 32 in October 2025, below the S&P 500's 17.9 and marking the first time since 2017 that tech's multiple sits under the broader market.

Keith Lerner, chief investment officer at Truist Advisory Services, says the decline suggests the market may already be pricing in significant bad news, leaving room for a positive response if sentiment improves. Investors are now watching potential catalysts including Anthropic's planned IPO, upcoming results from CoreWeave, Nvidia and Dell, and broader risks tied to the U.S.-Israeli war with Iran, oil prices, inflation and the Federal Reserve's path for interest rates.

In our earlier article on the S&P 500 slide, we noted that heavy selling in technology and semiconductors—alongside doubts about the durability of AI-driven investment and higher borrowing costs—dragged the index lower. The analysis highlighted rising Treasury yields and a hotter inflation print as additional headwinds, while flagging key technical levels and moving averages as investors weighed whether the pullback was a short-term shakeout or a sign of deeper fragility.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.