Tech’s AI Panic Leaves Value Stocks in the Driver’s Seat as Growth Rotation Accelerates

If you blinked this week, you missed the moment the market’s AI fever broke. The selloff in tech and software names was not your garden-variety dip, this was a full-blown panic, the kind that turns “buy the dip” into “wait, is there even a dip left to buy?” Yet, as the dust settles, something remarkable has happened: the market’s center of gravity has shifted. Value stocks, those perennial benchwarmers, are suddenly running the show while tech sits on the sidelines nursing a -6% year-to-date hangover.

Let’s not sugarcoat it. The rout in technology was ugly, with software and data analytics names taking the brunt. Barron’s called it a “monster of our own making,” and for once, the hyperbole fits. The AI narrative that propelled tech to nosebleed valuations has now boomeranged, with investors suddenly realizing that maybe, just maybe, AI will cannibalize as much as it creates. The result? A growth-to-value rotation that’s left energy up 17% and tech in the penalty box. The S&P 500, for all its headline resilience, has masked this internal carnage with a recovery that’s more about bond yields than earnings.

The numbers tell the story. The S&P 500 clawed back its losses as bond yields ticked higher, but the composition of that bounce is what matters. Technology, the former darling, is the worst-performing sector in 2026 so far. Meanwhile, energy and industrials are quietly taking the baton. The Cboe’s derivatives desk is seeing a surge in options activity on value names, while tech volatility remains elevated. The AI freakout is not just a headline, it’s a regime change.

This is not the first time growth has ceded the stage to value, but the speed of the rotation is what’s catching traders off guard. The last time we saw a similar pivot was in the aftermath of the 2022 inflation spike, but that was driven by macro. This time, it’s a narrative collapse. The market is finally asking hard questions about tech’s margins and the sustainability of AI-driven multiples. It’s also rediscovering the joys of cash flow and tangible assets. Bernstein’s CEO called the broadening of the market “very healthy,” but let’s be honest: it’s also a little bit desperate. When the hot money runs out of tech, it has to go somewhere, and right now, that somewhere is value.

The cross-asset correlations are shifting, too. Energy’s outperformance is not just about oil prices, it’s about a market that’s suddenly allergic to duration risk. Rising bond yields are making growth’s future cash flows look a lot less attractive, while value’s steady dividends are back in vogue. The IPO market, which was supposed to be the next big thing, is now a sideshow as traders chase relative strength in sectors that were left for dead six months ago.

The real absurdity here is that nothing fundamental has changed in the AI story. The technology is still transformative, but the market’s willingness to pay infinite multiples for future growth has evaporated. This is classic narrative whiplash. The same algos that chased tech to the moon are now stampeding out, and the only thing left is a trail of broken charts and confused retail traders.

The lesson? When the market gets crowded on one side of the boat, it doesn’t take much to tip it over. The AI panic was the trigger, but the underlying issue is positioning. Hedge funds and prop desks were levered long tech, and when the unwind started, there was no bid underneath. The rotation into value is as much about forced selling as it is about genuine conviction.

Strykr Watch

If you’re trading this rotation, the technicals are your friend. The S&P 500 is holding above key support at 6,850, with resistance looming at 7,000. The Energy Select Sector SPDR is flirting with new highs, while tech (XLK) is stuck in a sideways grind at $141.06. Relative strength indexes are flashing overbought on value and oversold on tech, a classic mean reversion setup if you have the stomach for it.

Options flows are telling the real story. There’s heavy call buying in energy and industrials, while tech puts are still in demand. The VIX remains subdued, but single-stock volatility is elevated, especially in software. If you’re looking for entry points, wait for a retest of support in tech or a pullback in value. Chasing here is a recipe for whiplash.

The risk, of course, is that the rotation overshoots. If bond yields spike further, even value could get caught in the downdraft. But for now, the momentum is with the laggards. The market is rewarding cash flow and punishing dreams.

The bear case is that this is just a dead cat bounce in value and that tech will reassert itself once the AI narrative stabilizes. But the weight of positioning argues otherwise. The unwind has room to run, and the pain trade is higher for value and lower for growth.

The opportunity here is to play the rotation, not the direction. Pair trades, long value, short tech, are working. So are relative strength strategies. If you’re nimble, there’s money to be made on both sides of the trade.

Strykr Take

This is not your father’s value rotation. The AI panic has exposed the fragility of consensus trades, and the market is recalibrating in real time. The smart money is already moving, and the window to catch the rotation is closing fast. Don’t get caught chasing yesterday’s winners. The new regime is here, and it’s rewarding those who can adapt.

Date published: 2026-02-06 23:15 UTC