Tech Stocks Are Getting Hammered—And Experts Call It a ’Healthy’ Correction for 2026

Tech's high-flyers are taking a dive. The Nasdaq's down double-digits this quarter—a gut-check for portfolios stuffed with last year's AI darlings.

Why the selloff isn't a crisis

Analysts point to overheated valuations. The relentless 2025 rally priced in perfection; this pullback simply wrings out speculative froth. It's a return to fundamentals—cash flow, realistic growth trajectories, and sustainable margins. Think of it as the market's own quality-control check.

The institutional perspective

Fund managers are rotating, not retreating. Capital isn't vanishing—it's shifting toward companies with clear paths to profitability. The 'growth at any cost' narrative is getting a harsh audit. One portfolio manager quipped, 'It's healthy. Like a colonoscopy for your balance sheet—uncomfortable but revealing.'

A necessary reset

This volatility creates entry points. It separates resilient business models from hype-driven stories. For long-term investors, disciplined buying during fear beats chasing momentum every time. Just ask anyone who bought the 2022 dip.

The correction cuts through noise, bypasses emotional trading, and forces a hard look at value. Sometimes, the market needs a bear to clear out the bulls. Consider it Wall Street's version of a software update—occasionally buggy, but ultimately for system stability. And if you're looking for an asset class that never sleeps on innovation? The crypto markets are already pricing in the next tech paradigm shift while traditional finance debates P/E ratios.

Key Takeaways

• The sector rotation from tech leadership to defensive sector leadership has picked up steam in recent days amid a sell-off in software stocks, a development some experts were calling "healthy" on Wednesday.
• Accelerating earnings growth outside of the Magnificent Seven has taken some of the sheen off Big Tech stocks, pressuring the market's largest stocks but buoying long-neglected corners of the market.

It might be hard for investors to feel upbeat while the major indexes are being hammered by tumbling tech stocks. But that's exactly how some experts are reacting to the rout.

“I actually think what we’re seeing in markets so far this year is very healthy,” said Stephen Parker, co-head of global investment strategy at JPMorgan Private Bank, in an appearance on CNBC Wednesday.

At the index level, the year so far is looking like a wash. The S&P 500 is up less than 1% since the start of the year after a volatile January. The tech-heavy Nasdaq ended Tuesday’s session flat for the year, and was down 2% in mid-afternoon trading Wednesday.

Why This Is Important

Tech stocks have been the driving force behind stock market gains for most of the bull market that began in late 2022. But unease over artificial intelligence (AI)'s potential to disrupt certain tech industries, as well as lingering concerns about richly valued tech stocks, has flipped the script this year, buoying value stocks and defensive sectors.

But movements under the surface tell a clearer story of market winners and losers. Tech is the worst-performing sector in the S&P 500 so far this year, down about 4%. There, concerns that AI will disrupt the software industry have offset big stock gains for the makers of memory chips and data storage devices. 

Meanwhile, the energy and consumer staples sectors are up double digits since the start of 2026, suggesting that the shift in market leadership that analysts have been eyeing for more than a year is finally underway. 

“People have been worried about concentration risk,” said Parker, referring to persistent concerns in recent years that the tech sector had too much weight in major indexes. “Now we’re seeing a rotation. It’s about a broadening of the recovery story,” he added. 

In the past month, Bank of America clients have funneled more money into consumer staples stocks—both in absolute dollar terms and as a percent of the sector’s market capitalization—than during any other four-week stretch since 2008, when the bank began tracking flows. On the flip side, clients have been net sellers of the tech sector in four of the past five weeks.

Market watchers have been expecting the chasm between the growth of the Magnificent Seven and the rest of the economy to narrow for well over a year. But Big Tech’s growth has remained exceptional. The Mag 7 currently accounts for a record 27.8% of the S&P 500’s earnings, according to a recent Ned Davis Research report. 

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But there are signs the tides could finally be turning. As of Monday, a record 90% of large-cap value companies tracked by Ned Davis had beat fourth-quarter earnings estimates. 

With growth accelerating outside of the tech sector, tech stocks have lost some of their luster. The difference between the Mag 7’s weight in the S&P 500 and its share of the index’s earnings—a shorthand for the premium investors are willing to pay for Big Tech stocks—narrowed from about 8% late last year to 6.3% today. That’s still well above the long-term average, meaning there’s room for Big Tech’s stock multiples to compress. 

The Mag 7’s earnings power and Wall Street’s taste for tech will be put to the test when Alphabet (GOOG) and Amazon (AMZN) report quarterly results on Wednesday and Thursday afternoons, respectively. Last week’s reports from Meta (META) and Microsoft (MSFT) revealed investors are setting a high bar for Big Tech.

Experts say the set-up is favorable for defensive sectors like consumer staples and industrials. “We see more room to run for Staples, which is still very underweight by active funds,” wrote BofA analysts on Wednesday. The sector could also benefit from policies coming out of Washington, D.C., meant to address voters' affordability concerns ahead of November's midterm elections.

But some warn not to write off growth stocks yet. Investors may return to paying a substantial premium for fast-growing tech companies if economic growth moderates later this year, said Ned Davis analysts.