By Teresa Rivas

It turns out that the next big thing is things.

Last week was a brutal one for many tech stocks and other more speculative investments, as investors worried that artificial intelligence would take away large parts of their business -- or replace them entirely. "Within Tech, the fear of becoming obsolete hit both quality and speculative growth software names indiscriminately," notes JPMorgan Head of Global Markets Strategy Dubravko Lakos-Bujas.

Yet AI can't replace the physical world (yet), hence big moves upward in stocks from United Airlines to Hershey. This trend might not be over.

More broadly, "equal weighted indexes performed quite well, driven by many of the losing sectors and styles of 2023-2025," writes Raymond James strategist Tavis McCourt. "This has been happening slowly since October, but went into overdrive last week, we suspect driven by [manufacturing data] that was very strong, while almost laughably high capex guidance from a number of cloud companies created some legitimate concern of malinvestment across megacap tech."

Indeed, the start of last week saw the Institute for Supply Management's Purchasing Managers' Index, or PMI, rise to 52.6 in January from 47.9 for December -- its highest level since mid-2022 and easily ahead of economists' expectations of 48.9. That contrasted with seemingly ludicrously high capital expenditure plans coming out of big tech, like Google parent Alphabet's plan to spend an estimated $185 billion and Amazon.com's pledge to spend $200 billion.

In fact, capital spending guidance for the five largest cloud companies this year is roughly $650 billion, equal to the capital spending of the rest of the Russell 3000 equity index excluding utilities, McCourt notes.

Skepticism about the wisdom of these profligate plans are a problem for indexes that are heavily weighted toward big tech like the S&P 500, which ended the week slightly lower. Yet it is good news in the sense that the rally is broadening beyond the Magnificent Seven stocks that have dominated the past few years.

"For the first time since 2022, the average year-over-year earnings per share growth of small, mid, and S&P 493 indexes is now 10%, and is expected to accelerate in 2026, which appears realistic given guidance so far," McCourt writes. "This follows three years of sub-par earnings growth, essentially pushing equity inflows into seven stocks that had tremendous EPS growth. This whole dynamic of 2023-2025 appears to be changing, and equity investors seem to be panic buying all the underperforming areas of the market in 2023-2025 in recognition of the EPS growth change."

Some of that panic was waning at the start of the new week, with the S&P 500 and Nasdaq Composite heading higher, yet it might be too soon to sound the all clear in terms of tech fears.

When it comes to the bifurcation in the market, between the AI winners and everything else, "the divergences remain so extreme that they are likely to take more time to completely unwind," writes Lakos-Bujas. "We favor increasing exposure to low volatility and quality growth as we anticipate reversals in the current extreme positioning -- not because we anticipate poor macro conditions."

This isn't the first time the market has shifted: In July 2024 and early 2025, there were similar moves away from risky assets as the market broadened out.

However the big difference is that this time the moves aren't happening amid a selloff. "This time, the equity market is actually up, and the broadening is occurring due to better earnings outlooks of broad equities, which feels much more sustainable than the prior two," writes McCourt.

Of course, the AI trade has overcome plenty of fears before, and may do so again. For now, however, investors may keep opting for the real thing.

Write to Teresa Rivas at teresa.rivas@barrons.com

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February 09, 2026 14:09 ET (19:09 GMT)

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