Tech Sector’s Valuation Paradox: Why AI Bubble Fears Aren’t Stopping the Smart Money

If you want to know what keeps traders up at night in 2026, it’s not the ghost of dot-com or the latest meme-stock fever dream. It’s the gnawing suspicion that the AI trade, which has powered the S&P 500’s tech sector to nosebleed heights, might be running on borrowed time. But here’s the twist: the data says otherwise. The market is pricing in a future where productivity isn’t just a buzzword, it’s a bottom-line reality. And while the headlines scream “bubble,” the numbers whisper something much more nuanced.

Let’s start with the hard facts. As of February 9, 2026, the Technology Select Sector SPDR ETF ($XLK) sits at $143.70, flatlining for the session after a week of whiplash-inducing headlines. MarketWatch reports that the S&P 500’s tech sector has seen the smallest increase in its price-to-earnings ratio relative to its 10-year average, according to DataTrek. That’s not exactly the stuff of speculative mania. If anything, it’s a sign that the market is doing what it’s supposed to do: discounting future cash flows, not just chasing the next shiny object.

Meanwhile, the “Brains Over Bricks” thesis is gaining traction. As Seeking Alpha notes, the productivity dividend from AI and automation is finally showing up in the data. That’s not just good for the tech giants, it’s a rising tide for the entire market. Piper Sandler’s Michael Kantrowitz remains constructive on equities, pointing to robust employment data and the resilience of corporate earnings, even as the macro backdrop gets choppier by the day.

But let’s not kid ourselves. The rotation out of AI darlings is real, and Mohamed El-Erian’s warning about “anti-AI” themes is more than just clickbait. There’s a genuine debate happening about whether the next leg of the rally will be powered by productivity or by pure, uncut FOMO. And with insider selling making headlines (“Reverberant Reversals,” Seeking Alpha), the smart money isn’t exactly all-in.

The real story here is that the market is caught between two narratives: the fear of missing out on the next great productivity boom, and the fear of getting burned by a bubble that never quite materializes. The data suggests that the former is winning, at least for now. But the risk of a sharp reversal is never far from traders’ minds.

The historical context is instructive. The last time tech valuations got this stretched, the Fed was still pretending inflation was “transitory” and everyone was talking about the metaverse. Fast forward to today, and the conversation has shifted to real-world applications: AI-driven supply chains, automated customer service, and the relentless march of Moore’s Law. The difference is that this time, the productivity gains are showing up in the numbers, not just in PowerPoint decks.

Cross-asset correlations are also telling a story. Commodities, as tracked by $DBC, are dead flat at $24.2455. That’s a sign that inflation fears are receding, at least for now, giving tech stocks room to run. But it also means that the margin for error is razor-thin. If inflation rears its head again, or if the Fed decides to get hawkish in a hurry, the tech trade could unwind in spectacular fashion.

So what’s a trader to do? The answer, as always, is to watch the technicals like a hawk.

Strykr Watch

Right now, $XLK is hugging the $143.70 level, with support at $141 and resistance at $147. The 50-day moving average sits just below at $142.50, while the RSI is hovering in neutral territory around 54. Momentum indicators are flashing mixed signals, with MACD flattening out after a bullish run in January. If $XLK can break above $147, the next target is the all-time high at $152. But a break below $141 would open the door to a quick retest of $137, where buyers have stepped in repeatedly over the past six months.

Volatility is subdued, but don’t get complacent. The options market is pricing in a 5% move over the next month, which is tame by recent standards but still enough to wipe out the weak hands. Watch for volume spikes on any break of Strykr Watch, if the algos smell blood, they’ll pounce.

The bear case is straightforward. If insider selling accelerates, or if earnings guidance disappoints, the air could come out of the AI trade in a hurry. The risk of a crowded unwind is real, especially with so much passive money parked in tech ETFs. And don’t forget the macro: a hawkish Fed or a surprise inflation print could send yields spiking and tech stocks tumbling.

But there are also real opportunities here. If you believe in the productivity thesis, a pullback to the 50-day moving average could be a gift. Long $XLK on a dip to $142 with a stop at $139 and a target at $150 looks compelling. Alternatively, selling puts at $140 could juice returns for those willing to own the sector on weakness. For the more adventurous, a breakout above $147 could trigger a momentum chase to new highs.

Strykr Take

The tech sector isn’t in a bubble, it’s in a transition. The market is finally starting to price in real productivity gains, not just hype. That doesn’t mean the ride will be smooth, far from it. But for traders who can separate signal from noise, there’s still money to be made. The key is to stay nimble, manage risk, and remember that in markets, as in life, the only constant is change.