Focus: U.S. Stock Q4 2025 Earnings Season

The year 2026 has begun with a weak start for technology stocks, driven by concerns over the disruptive impact of artificial intelligence and a shift of capital into previously underperforming sectors. However, without the support of this heavyweight sector, the broader market may struggle to achieve significant gains.

NVIDIA is scheduled to release its quarterly earnings report on Wednesday, presenting the next major test for technology stocks. Market participants are actively debating whether the AI-related sell-off has been overdone and when pressured individual stocks might reach a turning point. As a leading semiconductor giant and the world's largest company by market capitalization, NVIDIA serves as a key indicator for the AI sector. Its financial results and future outlook are expected to have widespread ripple effects across the industry.

"AI will continue to reshape the world, but I don't believe it signals the end," stated Ken Polcari, Partner and Chief Market Strategist at Slatestone Wealth in Florida. "Similar to every industrial revolution, the process is accompanied by anxiety, but once this phase is crossed, new opportunities will emerge."

So far this year, the S&P 500 technology sector has declined by 3.5%, marking its worst start since 2022—a year when the Federal Reserve began raising interest rates and stock markets broadly fell.

Performance within the sector has been highly divergent. Software stocks have faced significant pressure due to market concerns that next-generation AI tools could severely disrupt their business models.

Year-to-date in 2026, the S&P 500 Software & Services Index has plummeted by 23%, recording its worst start on record. Among the hardest-hit software stocks, Intuit, which reports earnings on Thursday, has fallen approximately 46% this year, while Salesforce, reporting on Wednesday, has declined 30%.

Despite this, investors have seen some glimmers of hope. Although software stocks recently stumbled following a research report highlighting AI risks, the sector experienced a modest rebound on Tuesday after Anthropic announced the launch of new tools in collaboration with several partners.

In contrast, two other subsectors within technology—semiconductors and equipment, and hardware—have risen 7% and over 4%, respectively, year-to-date.

The performance gap between semiconductor stocks and software stocks has reached an extreme level.

NVIDIA is also the largest company by market capitalization within the "Magnificent Seven," a group that also includes Alphabet, Apple, and Tesla, among others.

Throughout the bull market that began in October 2022, these stocks have consistently led the rally, attracting investors due to their exceptional profit growth and competitive advantages.

"The NVIDIA earnings report is crucial because it essentially acts as the central hub for the Magnificent Seven," said Chuck Carlson, CEO of Horizon Investment Services in Indiana.

However, the collective performance of the "Magnificent Seven" has been weak in 2026. NVIDIA is the best performer among them, with a gain of over 3%. Other members, such as Amazon, have fallen around 10%, while Microsoft has declined nearly 20%. Data from S&P Dow Jones Indices shows that, as of last Friday, Microsoft was the single largest drag on the S&P 500's performance this year.

Beyond concerns specific to the software industry, Microsoft's stock faces additional pressure from market worries that its massive investments in building AI infrastructure may not yield sufficient returns. Amazon, Alphabet, and Meta Platforms are also grappling with similar capital expenditure concerns.

As technology stocks face challenges, capital is flowing into other sectors that have lagged during this bull market.

Since technology stocks peaked in late October of last year, the sector has fallen approximately 10%. Over the same period, the materials and energy sectors have surged over 20%, while the industrial and consumer staples sectors have also posted gains well above 10%.

Supported by these sectors, the S&P 500 benchmark index has remained largely flat since late October, despite the weak performance of technology stocks.

Even with its subdued returns this year, the technology sector remains a core component of the major indices. For instance, the technology sector holds a 33% weighting in the S&P 500, whereas the financial sector, the second largest among the 11 sectors, has a weighting of just 12.4%.

This means that, even if other sectors perform strongly, the benchmark index would still find it difficult to post significant gains without contribution from technology stocks.