Tech set to still sway US stock market's course despite AI-driven swoon

NEW YORK, Nov 9 : Even with the steep pullback in AI names, the US stock market is poised to rely on the performance of technology shares — and investors are on guard for obstacles that could trip up the trade in the coming weeks.

A month-long swoon in technology and AI-related stocks culminated this week in the biggest one-day drop for the S&P 500 technology sector in over six years. Investors are concerned Democratic victories in the midterm elections would lead to slower data-center spending that has been at the heart of the market's rally.

Yet even with the drop, tech remains by far the biggest sector in the S&P 500, the benchmark index for the US stock market. Although its sway has diminished modestly, the tech sector still held a greater than 35 per cent weight in the S&P 500 as of Thursday's close.

"Because so much of technology is AI-sensitive, it's going to have an impact on the entire sector, and that sector carries so much weight within the S&P 500," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. "So weakness in AI is going to drag down tech, which drags down the S&P 500."

The sector's percentage of S&P 500 market capitalization remains above the level it reached during the height of the Internet bubble era in 2000.

The tech sector alone does not fully capture AI's influence. For example, three hyperscalers spending massively on data centers — Alphabet, Amazon and Meta Platforms — are classified in other sectors.

The continued heavy weighting of technology is a byproduct of the huge gains for the sector during the US stock bull market that began in October 2022. Even with the tech sector's latest slide, it has gained more than 200 per cent over that period, nearly double the S&P 500's gain.

Some of the biggest AI winners are still logging significant year-to-date gains despite their recent slides. For example, shares of Sandisk remained up about 250 per cent in 2026, while Dell Technologies was last up about 160 per cent and Micron Technology had gained 140 per cent.

As stocks rebounded somewhat on Friday, the S&P 500 was last up nearly 8 per cent for the year, with the tech sector up about 11 per cent.

"If somebody is in a profit-taking mode, there are still profits to be had," said Chuck Carlson, CEO at Horizon Investment Services.

The slide in tech has also made valuations for the stocks appear — at least on the surface — more modest. The tech sector's forward price-to-earnings ratio — based on earnings estimates for the next 12 months — fell to 17.1 as of Thursday, according to LSEG Datastream, after it rose above 32 in October 2025.

The P/E ratio for the overall S&P 500 stood at 17.9. This week marked the first time since 2017 that the tech sector's P/E has fallen below that of the broader market.

The drop in valuations means "arguably ... the market is already pricing in a lot of bad news," said Keith Lerner, chief investment officer at Truist Advisory Services.

"We are moving toward a situation where a little good news could go a long way," Lerner said in a note on Thursday.

Investors will be watching a number of potential catalysts in the coming weeks that could drive the AI trade in one direction or the other:

** ANTHROPIC IPO: Developments with the initial public offering of AI lab Anthropic are poised to drive sentiment about the AI trade. Reuters reported on Thursday that potential investors are raising doubts about whether the company can proceed with its IPO roadshow next week in time for a November listing. The discussions reflect in part the impact of the sharp tech stock swoon.

** TECH EARNINGS: While the bulk of third-quarter earnings reports have finished, some key results remain. Cloud company CoreWeave, which has been at the center of concerns about financing the AI buildout, reports on Tuesday. AI bellwether Nvidia is due on November 17, while Dell reports on November 24.

** MACRO BACKDROP: Developments involving the US-Israeli war with Iran are set to sway stocks broadly. Expectations that the shift in Congress could bring about the end to the conflict helped drive oil prices lower this week, which in turn helped stocks. But investors are wary of an escalation in tensions with the midterms finished. Investors are also closely watching the path for interest rates and how significantly the Federal Reserve will raise rates in the coming months to tamp down inflation. One test comes with next week's Consumer Price Index report.