AI Stocks Flatline as Investors Rotate to Old-Economy Plays: Is the Tech Trade Broken?

If you blinked, you missed it. The AI trade, once the market’s golden child, is flatlining. The numbers are right there in the price tape: XLK at $141.06, unchanged, unbothered, and, if you’re long, unloved. The rotation is not a rumor, it’s a fact, and it’s happening in broad daylight while Wall Street’s narrative machine is still stuck in 2025. The S&P 500 Equal Weight just notched an all-time high, but the AI-exposed software darlings are getting left behind. The only thing more frozen than the XLK chart is the look on the face of anyone who bought the top in December.

Let’s talk about the absurdity. The Big Four hyperscalers are in the midst of a $650 billion capex binge, according to MarketWatch and Seeking Alpha, and the market’s collective response is a yawn. AI infrastructure costs are exploding, up 70% year-over-year, and yet the sector ETF is as flat as a Kansas highway. If you’re looking for price action, you’ll find more in a goldfish bowl. Meanwhile, old-economy stocks, the so-called dinosaurs, are staging a comeback that would make Spielberg jealous. The Dow is above 50,000 for the first time, and the S&P 500 Equal Weight is at record highs.

The news cycle is a carousel of AI angst. MarketWatch calls it a “growing divide within markets.” Benzinga says investors are “fleeing software for old-economy stocks.” YouTube’s parade of strategists are wringing their hands about the sustainability of AI spending, while Seeking Alpha warns the “primary narrative is collapsing.” The facts are hard to ignore: the AI trade is not just pausing, it’s stalling out. The market is voting with its feet, and those feet are running toward steel, pharma, and anything with a dividend yield above zero.

But let’s zoom out. This isn’t just about AI fatigue. It’s about the cost of capital, the return on that capital, and the realization that not every dollar spent on GPUs is a dollar well spent. The hyperscalers are burning money at a rate that would make WeWork blush, and investors are starting to wonder if the juice is worth the squeeze. The S&P 500’s equal-weighted breakout is a flashing neon sign that the rotation is real. Historically, these rotations don’t end with a whimper, they end with a bang, usually when the last holdout finally throws in the towel on the old leadership.

The macro backdrop is adding fuel to the fire. The Fed is still talking tough on inflation, with Atlanta’s Bostic reminding everyone that 2% is “paramount.” Tariffs are starting to bite, with CPI set to show the full effects in January. In this environment, cash flow is king, and the market’s love affair with unprofitable growth is on ice. The AI trade is a victim of its own success, too much hype, too much spending, not enough earnings. The result is a sector ETF that can’t catch a bid, even as the broader market grinds higher.

The real story is that the market is repricing risk, and tech is on the wrong side of that equation. The AI narrative is not dead, but it’s definitely in the penalty box. The question now is whether this is a pause that refreshes or the start of a deeper unwind. The data says the latter. The S&P 500 Equal Weight’s breakout is a classic signal that leadership is changing. The fact that XLK can’t move off the mat, even with all the AI headlines, is a tell. This is not just sector rotation, it’s a regime shift.

Strykr Watch

Technically, XLK is stuck in a rut. The ETF is pinned at $141.06, with support at $139 and resistance at $144. The 50-day moving average is flattening, and RSI is languishing below 50. Momentum is gone. If XLK loses $139, the next stop is $135. On the upside, a close above $144 would be needed to reignite any bullish momentum. But with breadth rolling over and money flowing into old-economy sectors, the path of least resistance is lower. Watch for volume spikes, if the sellers come out, this could get ugly fast.

The risk is that the AI trade becomes a funding source for everything else. If the hyperscalers guide lower on capex or miss earnings, the unwind could accelerate. Conversely, if we get a surprise upside in earnings or a dovish pivot from the Fed, tech could catch a bid. But right now, the tape says avoid.

The opportunity is on the other side of the trade. Long old-economy, short AI. The Dow and S&P 500 Equal Weight are working, and the rotation has legs. Look for relative strength in industrials, healthcare, and anything with a stable cash flow. If you must play tech, keep stops tight and size down. The risk/reward is not in your favor.

Strykr Take

The AI trade is broken, at least for now. The market has spoken, and it wants cash flow, not capex. The rotation is real, and it’s not done. If you’re still holding the AI bag, it’s time to rethink your exposure. The smart money is already moving. Don’t be the last one out.