US stock markets experienced significant declines on Thursday as investors continued to retreat from tech sector holdings, marking the third consecutive day of losses for major indexes. The S&P 500 tumbled more than 1% around midday as the tech stock selloff intensified, with the iShares Expanded Tech-Software Sector ETF dropping an additional 3% after recently entering bear market territory.
Major indexes had shown gains earlier in the trading session before reversing course around noon Eastern Time. The sharpest losses were concentrated among software and memory stocks, reflecting broader concerns about artificial intelligence disruption and elevated valuations across the technology landscape.
Tech Stock Selloff Continues Despite Brief Rally
The sustained selling pressure indicates that investor anxiety about AI technology has not subsided, despite a brief relief rally at the start of the week. Software stocks experienced particularly brutal selling last week as traders reassessed the competitive threat posed by advancing AI capabilities.
Additionally, three AI-exposed sectors saw significant declines this week. Shares of insurance brokerages, wealth management firms, and real estate services companies all dropped on fresh concerns about potential AI disruption to their business models.
Economic Data Adds to Market Uncertainty
According to Jose Torres, a senior economist at Interactive Brokers, investors are likely responding to recent weakness in economic data. He noted that most sectors in the economy were losing jobs, despite the US overall adding more payrolls than expected in January, creating a contradictory signal for market participants.
However, Torres emphasized that investors are becoming more selective about their AI investments. Market participants are increasingly focused on the actual earnings potential of artificial intelligence technologies rather than speculative enthusiasm.
“You have dwindling AI hopes coinciding with lackluster economic reports,” Torres told Business Insider. The combination of these factors has created headwinds for tech stock valuations that had previously commanded premium multiples.
Valuation Concerns and AI Pricing Power
Rosenberg Research highlighted fundamental concerns about tech sector valuations in a client note on Thursday. The firm pointed to uncertainty around future cash flows among large technology companies as agentic AI systems potentially pressure pricing power across the software and services industry.
Meanwhile, the research firm noted that the sustainability of the accelerating investment cycle remains highly uncertain. Identifying the ultimate beneficiaries of AI-driven growth has become increasingly challenging for investors attempting to position their portfolios.
In contrast to earlier market enthusiasm about AI capabilities, investors are now conducting more rigorous analysis of which companies can actually monetize artificial intelligence technologies effectively. This shift in sentiment has contributed to the rotation away from high-flying tech stocks into other market sectors.
Market Rotation Reflects Changing Investor Priorities
The ongoing tech stock selloff represents a significant market rotation as investors reassess risk and return profiles across different sectors. Capital has been flowing out of previously favored technology holdings as concerns about both AI disruption and elevated valuations weigh on sentiment.
Furthermore, the broad-based nature of the tech sector decline suggests that investor concerns extend beyond individual companies to encompass systemic questions about the sector’s growth trajectory. The combination of AI uncertainty and economic data weakness has created a challenging environment for technology investors.
Market participants will likely continue monitoring economic indicators and corporate earnings reports to assess whether current tech stock valuations are justified. The direction of major indexes in coming sessions will depend on whether selling pressure intensifies or investors find a stabilization point for technology sector holdings.
