AI Spending Hangover: Why Fund Managers Are Rotating Out of US Tech and Into Global Industrials

The market’s love affair with AI has finally hit the awkward morning-after stage. For five straight weeks, the Nasdaq has been on a losing streak, and the latest session opened in the red, with traders still digesting the hangover from last week’s inflation report. The real story isn’t just the pullback in tech, but the subtle, seismic shift happening under the surface: US fund managers, once giddy on AI-fueled growth, are now quietly rotating out of the domestic tech darlings and into global industrials and value plays. That’s not a typo, actual value stocks, the ones with cash flow and factories, are back in vogue.

The latest BofA survey, cited by Barron’s, confirms what every prop desk analyst has been muttering for weeks: US AI spending is starting to look like a bubble, and the smart money is looking for the exits. Overseas equities, especially in Europe and select Asian markets, are suddenly attractive again, not because they’re exciting, but because they’re not trading at 45x forward earnings on the promise of the next large language model. The S&P 500, for all its resilience, is showing cracks as the cost of AI development eats into margins and investors question whether the productivity gains are real or just a clever accounting trick.

Let’s talk numbers. The Technology Select Sector SPDR Fund ($XLK) is stuck at $139.57, flatlining after months of relentless momentum. The S&P 500 managed a minor gain last week, but only because value and industrials picked up the slack. Meanwhile, the DBC commodities ETF is also dead in the water at $23.88, reflecting the broader risk-off mood. The headlines are full of handwringing about tariffs, but the real pain is in the AI complex. Companies are absorbing higher costs, but the market isn’t buying the “soft landing” narrative anymore.

Remember when AI was supposed to save the economy from stagflation? Now, the same AI spending is being blamed for margin compression and a global style rotation. The last time we saw this kind of divergence between US tech and global value was in the early 2010s, right before the European recovery trade took off. The difference now is that the US is still the epicenter of innovation, but the price you’re paying for that exposure is starting to look absurd, especially when you can buy German machinery stocks at a discount and get paid a dividend for your trouble.

The macro backdrop isn’t helping. Inflation is sticky, the Fed is still hawkish, and the bond market is signaling caution. Treasuries are being pitched as an antidote to AI fears, but yields have barely budged. The real action is in the cross-asset flows, as fund managers quietly rebalance portfolios to reduce exposure to overvalued US tech and increase allocations to global industrials, energy, and even select emerging markets. The narrative is shifting from “AI will eat the world” to “maybe let’s not pay 10x sales for a company that makes chatbots.”

The overseas rotation is no longer just a contrarian trade, it’s becoming consensus. The latest BofA survey shows a marked increase in global equity allocations at the expense of US tech. Even the most diehard growth managers are talking about “risk management” and “valuation discipline,” which is code for “we’re selling some Nvidia and buying Siemens.” The irony is that the AI theme isn’t dead, it’s just moving offshore, where the implementation is more about efficiency and less about hype.

Strykr Watch

Technically, $XLK is stuck in a holding pattern at $139.57, with resistance at $142 and support at $136. The RSI is rolling over, momentum is fading, and the 50-day moving average is flattening out. If $XLK breaks below $136, the next stop is $130, which would confirm the rotation out of US tech. On the flip side, a break above $142 could trigger a short squeeze, but the odds are fading as volume dries up. Watch for cross-asset flows, if the DBC commodities ETF starts to move, that’s your signal that the rotation is accelerating.

The S&P 500 is holding up, but only because value and industrials are masking the tech weakness. If the rotation continues, expect to see more dispersion within the index, with energy and materials outperforming while tech lags. Overseas, the Euro Stoxx 50 is quietly making new highs, and Asian industrials are catching a bid. The message is clear: the easy money in US tech has been made, and the smart money is moving on.

The risk here is that the rotation becomes a stampede. If US tech breaks key support levels, the selling could accelerate, triggering forced liquidations and margin calls. The other risk is that the overseas trade gets crowded, if everyone piles into the same value names, the outperformance could evaporate as quickly as it appeared. For now, the technicals favor the rotation, but keep an eye on volume and cross-asset correlations for signs of exhaustion.

The opportunity is to play the rotation, not fight it. Long global industrials, short US tech, and use tight stops to manage risk. If you’re still long AI, hedge with value or consider trimming exposure on any bounce. The setup favors mean reversion, not momentum.

Strykr Take

The AI party isn’t over, but the music is definitely slowing down. The rotation out of US tech and into global value is real, and it’s being driven by more than just headline fatigue. The fundamentals are shifting, the technicals are flashing warning signs, and the smart money is already moving. Don’t be the last one out the door.