By Teresa Rivas

Another day, another round of artificial intelligence fears hitting tech-related stocks. The sector's day in the sun may not be over, but it increasingly looks like it will have to share the spotlight.

"We are witnessing a distinct 'passing of the torch' as sector rotations intensify, and capital shifts from growth to cyclical and value stocks," writes Craig Johnson, chief market technician at Piper Sandler. "Energy, Materials, Industrials, Transportation, Banks, Staples, REITs, and Utilities are outperforming, climbing to multi-month highs." He suggests investors take advantage of modest pullbacks to increase exposure to these until recently unloved areas of the market.

Worries about AI's ability to cannibalize other areas of tech -- particularly software -- before moving on to other industries have been weighing on markets this week and last, aside from a brief bounce.

"That makes IGV, the iShares Expanded Tech-Software Sector exchange-traded fund, the most important ETF in the market because it will have to stabilize before we can expect AI skepticism and anxiety to subside," Sevens Report President Tom Essaye writes. "[T]his is the most uncertain outlook we've seen for AI and the tech-driven rally since this bull market started three years ago...I do want to caution against dismissing this weakness as 'just another bump in the road.' There are real questions being raised about the sustainability of the AI boom."

If there's going to be an end to the pain, IGV will likely signal it, he believes. The fund needs to hold last week's low of $79.27 before tech more broadly can stabilize. Shares were falling again on Thursday, hovering around $80.

For investors looking to diversify, Essaye suggests the Invesco S&P 500 Equal Weight ETF $(RSP)$, Vanguard FTSE Developed Markets ETF $(VEA)$, Vanguard Value ETF (VTV) and the Invesco S&P 500 Low Volatility ETF $(SPLV)$.

Still, he doesn't think that investors necessarily need to abandon tech.

"It's not right to say the outlook for AI and tech has turned negative, we don't have those facts," he writes. "However it is fair to say that for the first time since the AI bull market began more than three years ago, there are legitimate unknowns about whether these gains are sustainable, and if these stocks have come too far for the likely reality."

The question of how far is too far will likely remain a sticking point, given that big tech stocks are indisputably still delivering earnings growth. Yet that growth matters far less when investor expectations have grown even higher -- as have these companies' eye-watering capital-expenditure plans.

"We believe AI will continue to be an engine of overall equity performance but there is a strong case to be made for broadening out equity exposure as performance drivers fade from AI producing companies to AI consuming companies," writes Charlie Anderson, senior vice president, UBS Wealth Management, who says investors should "develop a diversified portfolio that is positioned a broadening stock market rally that goes beyond big tech."

He also notes that the Magnificent Seven big tech stocks -- Google parent Alphabet, Amazon.com, Apple, Facebook parent Meta Platforms, Microsoft, Nvidia, and Tesla -- are no longer trading in tandem. The upshot is that investors should think of them less as a group and more as individual companies, each facing its own cycle: "Strong earnings get rewarded while companies with heavy spending and softer guidance are treated with skepticism."

It's also worth noting that while tech's earnings growth has been stellar, "this earnings advantage is expected to narrow in 2026, with small- and mid-caps and the 'S&P 493' -- the 493 non-Magnificent Seven names in the S&P 500 -- poised to continue to close the earnings per share growth gap," notes Jeff Schulze, head of economic and market strategy at ClearBridge Investments. Consensus calls for the Mag7 to account for 23% of earnings growth this year, down from nearly 40% in 2024.

Overall, reports of tech's death have been greatly exaggerated, and the sector should continue to play a key role in the broader market's rise this year. But as tech's contribution to earnings growth wanes, so too may its dominance.

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

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February 12, 2026 14:42 ET (19:42 GMT)

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