Technology Tumbles as AI Spending Doubts Hit Heavyweights

On Thursday, October 22, mega-cap stocks drove a sharp retreat across technology while high-quality companies remained sparse throughout the group. The cap-weighted Information Technology sector closed -4.0%, compared to an equal-weighted return of -2.5%, showing that the largest companies did the most damage. Breadth was narrow, as only 30.9% of the sector's stocks advanced. The Technology Select Sector SPDR Fund, an exchange-traded fund that trades under the ticker XLK, closed -3.3%, with just 34.6% of its portfolio graded A or B for quality against industry peers. The selling took hold as rising artificial-intelligence infrastructure costs pressured corporate cash flow. Equipment makers also issued cautious profit projections that rattled semiconductor shares.

Disclosures showing that earnings reports failed to ease doubts about the artificial-intelligence outlook weighed on market sentiment. At the same time, earnings results from Meta and Tesla failed to ease market doubts and added to investor unease. Across the wider market, 5 of the 11 sectors rose.

Coherent Inc closed -12.5% after analysts reduced price targets and issued cautious research coverage. Meanwhile, Roper Technologies Inc closed +9.7%, though our sources show no company-specific announcements driving the move. Separately, HP Inc ended +7.9%.

For investors who track the sector through XLK, the day compounds recent weakness. The fund closed at $182.37, bringing its move over the past month to -6.6%. However, its weighting structure means the fund moves in lockstep with a handful of giant companies. EasyAlpha grades the stocks in the sector against their industry peers. Companies graded A or B have stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E. Only 34.6% of the fund sits in those top two tiers.