What began as a broadly inclusive rally tied to the promise of artificial intelligence is increasingly showing cracks as market participants separate clear beneficiaries from companies facing disruptive pressure. Enthusiasm over AI’s potential to lift corporate profits helped power the U.S. bull market, driving strong returns for technology firms and other businesses tied to data center construction and related infrastructure.
That positive backdrop led many market participants to expect 2026 to mark a more visible translation of AI-driven productivity into corporate bottom lines. But recent developments have highlighted the technology’s capacity to unsettle established business models, prompting fresh investor scrutiny of valuation and durability across several sectors.
High-profile product rollouts and AI-enabled features have triggered targeted selling among groups once seen as beneficiaries of the AI theme. For example, the introduction of plug-ins for Anthropic’s Claude Cowork agent in early 2026 spurred declines in software stocks. By Wednesday, the heavyweight S&P 500 software and services index had fallen 15% since the end of January.
Financial services have not been immune. Brokerages slid sharply after a startup wealth management firm rolled out AI-powered tax planning tools, with shares of LPL Financial, Raymond James Financial and Charles Schwab each dropping at least 7% following the announcement. Insurance brokers also experienced pressure this week after an online insurance platform unveiled an AI-based comparison tool built on ChatGPT, sending shares of firms such as Willis Towers Watson and Arthur J Gallagher lower.
"You’re going to see a lot of volatility driven by these headline stories that are also going to be very single-name centric," said Alex Morris, CEO and CIO of F/m Investments.
Market strategists describe a fracturing of the once-unified AI trade. Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, said the market has moved from a monolithic view of AI to one that rewards perceived winners and punishes those thought to be vulnerable. "You’ve clearly seen that breakdown in terms of the monolithic AI trade," he said. "You’re going to have these tug-of-war dynamics in a lot of the bigger index weights, just by how the market’s rewarding perceived winners and losers in the AI race."
Some of the largest names associated with the AI-led rally have themselves come under pressure amid questions about the returns on aggressive capital investments. Microsoft was down 16% year-to-date and Amazon.com was off more than 11% this year, reflecting concern among investors that outsized spending might not translate into proportionate profit gains.
"The concern that they’re just spending far too much money ... I think that’s an open question," said Yung-Yu Ma, chief investment strategist at PNC Financial Services Group. He added that he believes "some of the negativity around the spending is going to ease up."
Falling valuations are prompting some investors to view the pullback as a buying opportunity. The forward price-to-earnings ratio for the software and services index recently declined to 22.7 times, its lowest level in nearly three years, according to LSEG Datastream. In that environment, some strategists are recommending a selective approach that favors higher-quality, more AI-resilient software companies.
JPMorgan equity strategists on Tuesday advised adding exposure to a basket of such firms, stating in a note that they believe "the balance of risks is increasingly skewed towards a rebound."
Yet speed of technological change complicates companies’ abilities to rebut negative narratives, according to Keith Lerner, chief investment officer at Truist Advisory Services. "The challenge right now is that AI is moving quickly," he said. "Earnings are still strong, but it’s hard for companies to come out and disprove the narrative."
Analysts say careful assessment of competitive advantages can help distinguish durable businesses from those facing more fundamental threats. Sean Dunlop, director of equity research at Morningstar, noted that economic "moats" - a term for firms’ competitive protections - can assist investors in "sift[ing] through the wheat and the chaff to some extent, whereas selling has been pretty indiscriminate, creating investable opportunities."
The AI theme was a major driver of tech-related strength through much of 2025, when the benchmark S&P 500 delivered a double-digit percentage gain for a third straight year. Optimism carried into 2026 amid a positive backdrop that included an expectation of S&P 500 earnings rising over 14% this year and the Federal Reserve potentially easing interest rates further.
Broad market measures have remained resilient even as technology lags. The S&P 500 was last reported up more than 1% year-to-date and remained not far from record highs, supported by gains in other areas of the market that have offset weak performance in some tech names.
Still, AI-driven turbulence has altered the distribution of losses. Michael O’Rourke, chief market strategist at JonesTrading, pointed out that S&P 500 constituents that were down on the year as of Tuesday had fallen an average of 10.6%, compared with a 5.9% average decline for index members that were lower at the same point last year. "In 2026, less is more, and stock picking is about avoiding implosions," O’Rourke wrote in a note.
Conclusion
As investors recalibrate, the market is showing a more discriminating response to AI. The technology continues to underpin expectations for future profits, but headline-driven reactions to specific product introductions and worries about capital expenditure have produced sharper, more concentrated moves. For market participants, navigating 2026 appears increasingly to be a matter of discerning which companies can convert AI investment into lasting, profitable advantage and which face more fundamental disruption.