Broad Selling Hits Tech as Doubts Spread Over Costly AI Spending

Selling in Information Technology was broad and heavy on Friday, October 16, with just 10.4% of sector members in the S&P 500 finishing higher. Cap-weighted performance cushioned the headline move, as the sector finished -2.4% while an equal-weighted measure ended -3.4%, indicating that smaller and mid-sized members absorbed steeper losses than the mega-cap leaders. The exchange-traded fund tracking the sector, Technology Select Sector SPDR Fund (XLK), ended the session -3.0%. Quality provided little defense against the retreat, with 33.6% of the fund held in companies graded A or B by EasyAlpha. The drop came as investors pulled back following an extended sell-off in technology shares, driven by mounting doubts about heavy artificial intelligence capital spending and higher bond yields that make debt-funded investment more costly.

Market sentiment deteriorated as investors focused on cracks in the AI trade, pointing to heavy debt loads across the technology ecosystem and the surging costs required to finance computing infrastructure. In one notable example, Microsoft agreed to an 1,100 megawatt power deal through 2048 to support data centers in Indiana, illustrating how securing electricity has become a prerequisite that precedes hardware installation. Doubts also spread as higher bond yields raised concerns that debt-funded technology investment could become harder to finance.

Twilio Inc was the sector's weakest performer, closing -10.6%, though our sources show no reported company-specific catalyst behind the drop. Smaller companies in the sector saw broader selling than the largest components, pulling the equal-weighted return below the cap-weighted measure. Bucking the broader decline, Accenture plc ended +2.1%, while Motorola Solutions Inc finished +1.5%.

The pressure on technology was distinct from conditions in the rest of the market. Across the broader equity landscape, 6 of the 11 sectors rose, showing that the day's pullback was a sector-specific reassessment rather than a broad market decline. While XLK provides low-cost exposure to the sector at an expense ratio of 0.08%, that fee efficiency offered no shelter from the day's losses. Following the session, XLK stands at -2.5% over the past month and -0.5% over the past 100 sessions.