MW As Nasdaq stumbles again, investors start to wonder: Have Big Tech stocks finally peaked?

By Christine Ji

The winning streak for mega-cap tech stocks might finally be over

A major market shift could end Big Tech's dominance, according to Bank of America.

As the biggest names in tech lead the market lower, investors are wondering if the sector is selling off for good.

Tech stocks tumbled for the second day in a row Wednesday, with the Nasdaq Composite Index COMP shedding 0.7% after falling 1.5% on Tuesday. Notable losers included Nvidia Corp. (NVDA), which has fallen roughly 4% since Tuesday's open, and Palantir Technologies Inc. (PLTR), which has fallen around 16% in a six-session losing streak.

While past downturns have proved to be fleeting, there are signs that the tech sector's reckoning may have finally arrived. A combination of higher inflation and Fed rate cuts points to the end of mega-cap dominance, Savita Subramanian, Bank of America's head of U.S. equity and quantitative strategy, said in a recent note.

In the past two months, Bank of America's U.S. "regime indicator," an economic model that tracks the U.S. business cycle, signaled a shift from a "downturn" to a "recovery," Subramanian said in the note.

In the past, that's spelled bad news for the biggest stocks and good news for everyone else. In previous recoveries, the largest 50 stocks in the S&P 500 Index SPX lagged the rest of the market by an average of 3.3 percentage points a year, while the other 450 stocks' price-to-earnings ratios expanded twice as much as the top 50.

With the market pricing in a September interest-rate cut, Subramanian sees even more reason for a sustained rotation out of mega-caps.

"Easing has been accompanied by mega-caps lagging more than leading, and higher inflation should support a broadening of the S&P 500 beyond defensives/secular growth," Subramanian wrote. Historically, in the three months after an initial rate cut, value stocks with low forward price-to-earnings ratios have outperformed growth stocks, according to Bank of America.

There are mega-cap companies in every sector, but the technology sector is home to the market's largest and most influential names, with the so-called Magnificent Seven representing roughly a third of the entire S&P 500's market cap. And with companies like Nvidia trading at 34.2 times forward earnings - not to mention Palantir at a staggering 156 times, according to FactSet data - the sector looks particularly vulnerable for a rotation.

"If the Fed's next move is a rate cut, and if the regime indicator is shifting to a recovery, we think the run may be closer to done," Subramanian said.

Also read: The entire stock market is being carried by these four AI stocks

While there wasn't a specific catalyst that triggered the tech selloff, concerns about an artificial-intelligence capital-expenditure bubble and stretched valuations loom over the tech sector.

However, some analysts remain staunch supporters of a continued tech rally.

Dan Ives of Wedbush Securities believes the AI growth story is simply too strong to be derailed. In a note published Tuesday, Ives said that while headlines about tariffs and Intel Corp. $(INTC)$ could lead to near-term volatility, the underlying demand for AI solutions remains strong. He encouraged investors to take the opportunity to buy the dip.

"Names like Palantir will further grow into their valuations over the coming years, in our view," Ives wrote. "While healthy pullbacks will happen...we believe Palantir is a trillion market cap in the next 2-3 years given its AI secret sauce that is disrupting the software landscape like an earthquake."

Investors will get another read on the sustainability of the AI boom next week, when Nvidia reports its second-quarter earnings.

Don't miss: Why the Russell 2000 has a real chance to beat the S&P 500 - finally

-Christine Ji

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August 20, 2025 17:34 ET (21:34 GMT)

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