Tech Sector Stalls as AI Spending Frenzy Collides with Old-Economy Rotation

Somewhere between the Seattle Seahawks’ Super Bowl odds and the S&P 500’s latest all-time high, the market’s tech engine has started to sputter. Not explode, not crash, just sputter, like a Tesla running out of battery in the Nevada desert. The numbers tell the story: XLK sits frozen at $141.06, not budging a cent in either direction. For a sector that’s been the market’s rocket fuel, this is less a pause and more a collective existential crisis.

The facts are in: AI-exposed software stocks, once the darlings of every macro tourist with a ChatGPT account, are now the market’s punching bag. Benzinga reports investors are fleeing software for old-economy stocks, while MarketWatch’s feature on Big Tech’s $650 billion AI binge reads like a cautionary tale. The S&P 500 Equal Weight Index just hit a new high, but the tech-heavy XLK is as flat as a London pint left out overnight. The market’s message is clear: the AI trade is no longer a one-way street to riches.

Let’s get granular. The XLK ETF, a bellwether for US tech, has been stuck at $141.06 for four straight sessions. No movement. No volatility. It’s almost as if the algos have gone on strike, refusing to buy another AI narrative until the old ones pay off. Meanwhile, the Dow is celebrating its own party at 50,000, and the S&P 500 Equal Weight Index is making new highs. The rotation is real, and tech is on the wrong side of it.

This isn’t just about a few bad earnings reports. The Big Four hyperscalers, Alphabet, Amazon, Meta, and Microsoft, are burning through cash in a $650 billion AI arms race, and the market is finally asking, “What’s the ROI?” The answer, at least for now, is “Ask again later.” The AI trade has gone from consensus to crowded to, well, questioned. And when the market starts asking questions, things get interesting.

Historically, tech stagnation is a warning sign. The last time we saw this kind of rotation, think late 2021, old-economy stocks outperformed for nearly a year before tech found its footing again. The difference now is the sheer scale of AI spending. MarketWatch calls it “existential.” That’s not hyperbole. When the market starts using words like that, it’s time to pay attention.

Cross-asset correlations are flashing yellow. Commodities (see DBC at $24.01) are flat, but energy and industrials are quietly outperforming. The S&P 500 Equal Weight Index is at all-time highs, suggesting breadth is improving, but not because of tech. If you’re still overweight XLK, you’re missing the party.

The real story here is about capital discipline. Tech’s AI binge is starting to look like a late-cycle excess, and the market is punishing it. Investors are rotating into sectors with real cash flow and less hype. This isn’t a tech crash, but it’s a regime change. The market is saying, “Show me the money,” and tech, for now, is coming up short.

Strykr Watch

Technical levels for XLK are clear: $141 is the line in the sand. Below that, support sits at $138, with resistance at $144. RSI is stuck in neutral, around 50, reflecting the sector’s indecision. The 50-day moving average is converging with price, a classic sign of consolidation before a bigger move. If XLK breaks below $138, the next stop is $134. On the upside, a close above $144 would signal the all-clear for another run.

The breadth indicators are telling. Advance/decline lines for tech are rolling over, while value sectors are gaining ground. The market isn’t pricing in a tech meltdown, but it’s definitely not rewarding growth at any price. Watch for volume spikes, if sellers show up, the move could accelerate quickly.

The risk here is complacency. With volatility at historic lows, traders are underestimating the potential for a sharp move. The options market is pricing in little risk, but that can change in a heartbeat if the narrative shifts.

What could go wrong? Plenty. If the Fed surprises hawkishly, tech will be the first casualty. If AI capex fails to deliver, earnings estimates will come down hard. And if the rotation into old-economy stocks accelerates, tech could see outflows pick up speed. The bear case is a break below $138 on XLK, triggering a rush for the exits.

On the flip side, there’s opportunity. If XLK holds $141 and rotates higher, the sector could catch a bid on any positive AI news or earnings beats. A dip to $138 is a buy zone for traders willing to play the bounce, with a stop at $134. If the sector reclaims $144, momentum chasers will pile in, targeting $150 and beyond.

Strykr Take

This isn’t a tech apocalypse, but it’s a wake-up call. The AI trade has gone from “can’t lose” to “prove it,” and the market is demanding results. For traders, the message is clear: don’t get caught napping. Watch the rotation, respect the technicals, and be ready to move when the next narrative takes hold. XLK is at a crossroads, and the next move will set the tone for the rest of 2026.