US stock market remains tied to tech despite sharp AI sell-of

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A month-long decline in technology and AI-linked stocks culminated this week in the S&P 500 technology sector’s steepest one-day fall in more than six years. Investors fear that Democratic victories in the midterm elections could slow the data-centre spending that has helped drive the broader market rally, Reuters reported.

Technology nevertheless remains the largest sector in the S&P 500 by a wide margin. Although its influence has eased slightly, the sector still accounted for more than 35% of the index’s market capitalisation as of Thursday’s close.

“Because so much of technology is AI-sensitive, it’s going to have an impact on the entire sector, and that sector carries so much weight within the S&P 500,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. “So weakness in AI is going to drag down tech, which drags down the S&P 500.”

Technology’s share of the S&P 500 remains above the level reached at the height of the dot-com bubble in 2000.

The sector’s weighting also understates AI’s overall influence on the market. Alphabet, Amazon and Meta Platforms—three of the largest spenders on data centres—are classified outside the technology sector.

Technology’s dominance reflects the enormous gains it has recorded during the US bull market that began in October 2022. Even after the latest decline, the sector is up more than 200% over that period—nearly twice the S&P 500’s gain.

Several major beneficiaries of the AI boom also retain substantial year-to-date gains despite the recent sell-off. Sandisk shares remained up about 250% in 2026, while Dell Technologies had gained roughly 160% and Micron Technology was up 140%.

Following a partial rebound on Friday, the S&P 500 was up nearly 8% for the year, while the technology sector had gained about 11%.

“If somebody is in a profit-taking mode, there are still profits to be had,” said Chuck Carlson, CEO of Horizon Investment Services, according to Reuters.

The sell-off has also made technology stocks appear less expensive, at least by one widely used measure. The sector’s forward price-to-earnings ratio, based on projected earnings over the next 12 months, fell to 17.1 as of Thursday, according to LSEG Datastream. It had exceeded 32 in October 2025.

By comparison, the broader S&P 500 traded at a forward P/E ratio of 17.9. This marked the first time since 2017 that the technology sector’s valuation had fallen below that of the overall index.

The valuation decline suggests that “arguably … the market is already pricing in a lot of bad news,” said Keith Lerner, chief investment officer at Truist Advisory Services. “We are moving toward a situation where a little good news could go a long way,” Lerner wrote in a note on Thursday.

Investors are now watching several potential catalysts that could determine the direction of the AI trade.

Anthropic IPO

Developments surrounding AI laboratory Anthropic’s planned initial public offering could influence sentiment towards the sector.

Reuters reported on Thursday that prospective investors were questioning whether the company could begin its IPO roadshow next week in time for a November listing. The discussions partly reflect the impact of the sharp decline in technology stocks.

Technology earnings

Although most companies have already reported third-quarter results, several closely watched earnings releases remain.

Cloud-computing company CoreWeave, which has been at the centre of concerns about financing the AI infrastructure buildout, is scheduled to report on Tuesday. AI bellwether Nvidia is due to report on November 17, followed by Dell on November 24.

Macroeconomic backdrop

Developments in the US-Israeli conflict with Iran are also expected to influence the broader market. Expectations that the change in Congress could help end the conflict pushed oil prices lower this week, providing support to equities.

Investors, however, remain wary of a renewed escalation following the midterm elections. They are also closely monitoring the outlook for interest rates and the extent to which the Federal Reserve may raise borrowing costs to contain inflation.

Next week’s Consumer Price Index report will provide an important test of that outlook.