Tech’s AI Panic Leaves Software Stocks in the Dust as Energy Rotation Redraws the Map

The market’s memory is short, but its appetite for drama is endless. This week, the scriptwriters in the tech sector outdid themselves, staging a selloff that left even seasoned traders blinking at their screens. Software and data analytics stocks were the designated villains, with the AI narrative flipping from “productivity miracle” to “existential threat” in the space of a few trading sessions. The S&P 500’s technology sector is now down nearly 6% year-to-date, according to Seeking Alpha, which is less of a correction and more of a slap in the face for anyone who believed the AI hype cycle would last forever. Meanwhile, energy stocks, those perennial underdogs, are up a robust 17%, making value investors look like geniuses and growth chasers like bagholders.

The carnage in tech wasn’t just about earnings misses or soft guidance. The real story is the market’s sudden realization that AI isn’t just a buzzword for quarterly calls, it’s a wrecking ball for legacy business models. Barron’s reports that the sharp selloff in software and analytics names was triggered by fears that AI tools could cannibalize the very industries that built them. It’s a monster of our own making, and the market is finally pricing in the risk that the disruptors might get disrupted themselves.

Of course, this wouldn’t be a proper market panic without a head-spinning reversal. By Friday, the S&P had clawed back much of its losses as bond yields ticked higher and the Dow Jones hit new heights. Investors.com notes that the rally was powerful, but the delayed jobs report and looming CPI data kept a lid on euphoria. The market is in full “buy the dip, but keep one hand on the eject button” mode.

The rotation out of tech and into energy isn’t just a knee-jerk reaction. It’s the logical outcome of a market that’s grown tired of paying 30x sales for companies that might get eaten by their own algorithms. With oil prices steady and the inflation story refusing to die, energy names look like the only game in town for traders who want exposure to real cash flows and not just dreams of digital domination.

But don’t get too comfortable. The last time we saw this kind of growth-to-value rotation, it lasted just long enough for everyone to pile in before the rug got pulled. The difference this time is that the macro backdrop is a lot less forgiving. Inflation is sticky, the Fed is still lurking, and the next set of economic data could turn the narrative on its head. The delayed jobs report and CPI print are the kind of wildcards that can make or break a trend in a single session.

The AI panic has also exposed some uncomfortable truths about market structure. Liquidity in tech names has been patchy, with algos amplifying every headline and retail traders left holding the bag. The options market is flashing signs of stress, with implied volatility spiking in software names even as the broader VIX remains subdued. It’s a reminder that the market’s surface calm can hide some serious turbulence underneath.

For traders, the key is to stay nimble and avoid getting married to any one narrative. The energy trade has legs, but it’s already crowded. Tech is battered, but not broken. The real opportunity may be in picking the survivors from the wreckage, those companies that can harness AI without getting eaten by it.

Strykr Watch

On the technical side, the S&P 500’s technology sector ETF is sitting at $141.06, flat on the day but still nursing year-to-date wounds. Key support sits at $138, with resistance at $145. A break below support opens the door to a retest of the $130 level, while a sustained move above resistance could trigger a short-covering rally back to $150. Energy names, by contrast, are flirting with multi-year highs, and momentum indicators are flashing overbought. RSI on the tech sector ETF is in the low 40s, suggesting there’s room for more downside before the bottom fishers step in.

Liquidity remains thin, with bid-ask spreads widening in some of the more speculative software names. Watch for spikes in options volume as a signal that the next move is coming. The delayed jobs report and CPI data are the obvious catalysts, but don’t underestimate the power of a well-timed earnings pre-announcement to move the tape.

The risk for tech is that the AI narrative turns from “hype” to “hazard” and triggers another wave of selling. For energy, the risk is that oil prices roll over or the macro data comes in soft, undermining the value rotation.

The opportunity is in the dislocation. Tech is oversold, but not dead. Energy is overbought, but the trend is your friend, until it isn’t. The smart money is watching for signs of capitulation in tech and exhaustion in energy.

The next week will be a test of nerves. Stay alert, keep your stops tight, and don’t fall in love with your positions.

Strykr Take

The market just reminded everyone that narratives are fun until the math stops working. Tech’s AI panic is both overdone and justified, depending on your time horizon. Energy’s run is impressive, but it’s not immune to a macro reversal. The real winners will be the traders who can pivot faster than the headlines. Strykr Pulse 65/100. Threat Level 3/5. This is a market for the nimble, not the faithful.