Tech ETF XLK Flatlines as Wall Street Rotates: Is the AI Hype Cycle Officially Broken?

The market’s gotten bored of the AI story. You can feel it in the price action, or lack thereof. XLK sits at $138.09, unchanged, as if someone hit pause on the entire sector. This is not your typical tech correction. This is a market that’s tired, a little hungover from last year’s AI party, and now looking for the next big thing. The Nasdaq’s worst two-day drop since April has traders asking if the AI trade is dead, or just resting before another run.

The facts are stark. Wall Street is rotating out of the AI darlings and into anything that looks remotely like the real economy. Industrials, transports, even some battered consumer names are getting love. Meanwhile, software stocks are in the doghouse, with the narrative shifting from “software eats the world” to “AI eats software.” The XLK ETF, which tracks the tech sector, has gone nowhere fast, holding $138.09 like it’s glued to the tape. The volume is anemic. Volatility, which used to be a tech staple, has evaporated. Even Jim Cramer is telling people to diversify, which is usually a sign that something fundamental has shifted.

The context here is important. Last year, AI was the only game in town. Nvidia, Microsoft, and a handful of others carried the entire market on their backs. Now, with the Fed still talking tough on inflation and the macro backdrop looking less friendly, the market is re-rating growth. The AI trade isn’t dead, but it’s definitely not the only story anymore. The rotation into “real economy” stocks isn’t just a blip. It’s a sign that investors are looking for something with a little more substance, and a little less hype.

Digging deeper, the software sell-off has been brutal. Fears of AI disruption are real, and not just in the abstract. Companies that looked untouchable a year ago are now trading like they’ve got targets on their backs. The narrative has shifted from “who will win AI” to “who will survive it.” That’s a much less bullish story, and it’s showing up in the price action. The XLK ETF is the poster child for this malaise. It’s not crashing, but it’s not rallying either. It’s just… stuck.

Strykr Watch

Technically, XLK is in no-man’s land. Support sits at $135, with resistance at $140. The 50-day moving average is flatlining, and RSI is stuck near 48, suggesting neither oversold nor overbought conditions. There’s no momentum, no conviction, just a lot of waiting. If XLK breaks below $135, things could get ugly fast. On the upside, a move above $140 might bring in some momentum chasers, but don’t expect fireworks unless the macro backdrop improves.

The risks here are obvious. If the Fed surprises with a hawkish move, tech could get hit hard. Inflation is still a threat, and any sign that the labor market is weakening could spook investors. There’s also the risk that AI really does disrupt the software business in ways that the market hasn’t fully priced in yet. If that happens, the rotation out of tech could accelerate.

On the flip side, there are opportunities. If XLK dips to $135, that could be a buying opportunity for traders with a strong stomach. A breakout above $140 could signal that the worst is over, at least for now. For those looking to play the rotation, there’s money to be made in the sectors that are benefiting from tech’s malaise. Industrials, transports, and even some consumer names are showing signs of life.

Strykr Take

This is not the time to chase tech. The AI hype cycle has run its course, at least for now. The smart money is rotating into other sectors, and traders should follow suit. Keep an eye on XLK for signs of life, but don’t expect miracles. The real action is happening elsewhere.