AI’s Capex Binge Leaves Software Stocks in the Cold as Investors Rotate Into Old-Economy Plays

If you’re looking for the market’s next big rotation, don’t bother with the usual suspects in tech. The real action is happening in the shadows, where software stocks are getting the cold shoulder while capital stampedes into old-economy names. The AI narrative, once a license to print money for anything with a .ai domain, is now a double-edged sword. Infrastructure capex is exploding, but the software darlings who once rode the AI hype train are suddenly left out in the cold.

The numbers are brutal. According to Seeking Alpha, the Big Four’s AI infrastructure capex is set to hit $600 billion in FY2026, a staggering +70% year-over-year jump. That’s not just a line item, it’s a tectonic shift. Wall Street’s wild week has rattled confidence, and the growing divide within markets is now impossible to ignore. As MarketWatch put it, “There are two different markets right now.” Software and AI-exposed stocks have stumbled out of the gate this year, with the sell-off accelerating in February as fresh fears emerged about the sustainability of the AI spending binge.

The rotation is real, and it’s vicious. Investors are fleeing software for old-economy stocks. Industrials and utilities are suddenly the belles of the ball, while software names are being dumped like last year’s meme coins. The market’s primary narrative is collapsing under the weight of its own expectations. AI infrastructure buildout costs are exploding, and the risk profile of the entire sector is being quietly reshaped. What looks like innovation may be creating a dangerous new dependency.

Let’s get specific. The Technology Select Sector SPDR Fund ($XLK) is stuck at $141.06, flatlining for days. The sector’s inability to rally in the face of massive capex spending is telling. Investors aren’t buying the story anymore. The old playbook, buy software, ride the AI wave, profit, has run into a wall of skepticism. The market is demanding real earnings, not just promises of future growth.

Meanwhile, the rotation into old-economy stocks is picking up steam. Industrials and utilities are positioned as likely winners, according to Seeking Alpha. The AI-driven bull market persists, but volatility and sector rotation are intensifying. The market is no longer a monolith. It’s a battleground.

The historical analog is 1999. Back then, the dot-com darlings soared on hype, only to crash when the market realized you can’t build an economy on eyeballs alone. Today, the AI hype is running into the hard reality of capex cycles and profit margins. The difference is that this time, the infrastructure is real. The question is whether the software layer can capture enough value to justify its multiples.

The macro backdrop isn’t helping. The Fed remains laser-focused on getting inflation back to its 2% target, as outgoing Atlanta Fed President Raphael Bostic reminded Bloomberg. The cost of capital is not coming down anytime soon. That’s bad news for high-multiple software names, who now have to compete with real yields and real cash flows in the old economy.

The market’s risk profile is shifting. The AI bubble risk just got even bigger, according to Seeking Alpha. A massive spending surge is quietly reshaping the market’s risk profile. The risk is that the AI infrastructure buildout becomes a capex black hole, sucking in capital and leaving little for software margins. The opportunity is that the old-economy names, long ignored, finally get their day in the sun.

Strykr Watch

Technically, $XLK is stuck in a rut. The $141 level is the pivot. Above that, resistance sits at $145, with a breakout target at $150. Below, support is at $137. The RSI is hovering around 50, signaling indecision. Volume is declining, a sign that conviction is lacking. The sector is in a holding pattern, waiting for a catalyst.

The playbook is clear: wait for a break of $145 to get long, or a loss of $137 to get short. The risk-reward is balanced, but the window is closing. This is not the time for hero trades or big bets. The market is telling you to be patient.

The bear case is that the AI capex surge becomes a margin killer for software. If the infrastructure buildout continues at this pace, software names will struggle to justify their valuations. The bull case is that the rotation into old-economy names continues, providing a tailwind for those willing to look beyond tech.

Opportunities abound for those willing to rotate. Longs in industrials and utilities, shorts in software. The key is to stay nimble and respect the rotation. This is not the time to fight the tape.

Strykr Take

The AI narrative is cracking, and the market is rotating hard. Software is out, old economy is in. If you want to make money in this market, follow the flows, not the hype. The capex binge is real, and it’s reshaping the landscape. Don’t get left behind.