The U.S. technology sector has stumbled in the early months of 2026, and that weakness is holding back broader market advances. Investor concern over disruption from artificial intelligence, combined with a shift toward sectors that had lagged during the rally, has left technology struggling to provide the lift needed for major indexes to climb meaningfully.
Nvidia’s quarterly report, scheduled for Wednesday, is shaping up as the next major event for tech. The semiconductor giant - also the world’s largest company by market capitalization - is widely seen as an industry bellwether. Its upcoming results and forward outlook could influence sentiment across segments of the sector and beyond.
Questions persist about whether the AI-related selling pressure that hit many software names has been disproportionate and about the timing of any potential recovery for those stocks. Ken Polcari, partner and chief market strategist at Slatestone Wealth in Jupiter, Florida, captured the prevailing mood: "AI will continue to disrupt the world but I don’t think it’s the end of the world. Like every industrial revolution, there will be anxiety going through it, but then when it comes out the other side, there will be new opportunities."
Measured by headline performance, the S&P 500 technology sector is down 3.5% so far this year, marking its weakest start since 2022, the year equities broadly fell as the Federal Reserve initiated interest rate hikes. Within the sector, performance has been markedly uneven.
Software firms have been particularly hard hit amid concerns that new AI tools could upend existing business models. The S&P 500 software and services index has plunged 23% in 2026, the worst such start for the group on record. Individual examples underscore that strain: Intuit’s shares have slumped about 46% year-to-date and Intuit is scheduled to report results on Thursday; Salesforce has fallen roughly 30% this year and is due to report on Wednesday.
At the same time, there are signs of resilience and divergence inside the technology complex. Two technology industry groups - semiconductors and equipment, and hardware - have climbed in 2026, up 7% and over 4%, respectively. Those gains highlight a split where capital spending and chip-related exposure have attracted investor interest even as software valuations have reset.
Some episodic pieces of news have also offered brief reprieves. A research report that emphasized AI-related risks pushed shares lower at one point, yet the software group staged a modest rebound on Tuesday after Anthropic said it had introduced new tools developed with certain partner companies. Still, the broader software slump remains deep.
Nvidia sits at the center of much of the market’s focus. The company is the largest member of the so-called "Magnificent Seven" megacap cohort, which counts Alphabet, Apple and Tesla among its ranks. Those megacaps were drivers of the bull market that began in October 2022, buoyed by outsized earnings growth and competitive positions.
"Nvidia’s earnings matter because they are kind of the linchpin of the Mag Seven," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. Yet even within that elite group, performance in 2026 has been uneven. Nvidia has been the best performer among them, rising over 3% so far this year. Other members have lagged: Amazon has slumped about 10% and Microsoft has dropped nearly 20%, with Microsoft representing the largest single drag on the S&P 500 through Friday, according to S&P Dow Jones Indices.
Investor concern around Microsoft and other megacaps has included scrutiny of heavy investment programs tied to AI infrastructure. Worries that such spending by Microsoft, Amazon, Alphabet and Meta Platforms may not generate sufficient returns have weighed on those shares.
Beyond the confines of technology, market participants have shifted allocations into sectors that underperformed during much of the recent bull run. Since technology peaked in late October of last year, the tech sector has declined roughly 10%. Over the same span, materials and energy have each climbed more than 20%, while industrials and consumer staples are both higher by well over 10%.
That rotation has kept the S&P 500 relatively flat since late October, even as tech faltered. The centrality of technology to index performance remains clear: technology accounts for a 33% weighting in the S&P 500, while financials are the next-largest sector at 12.4%. As a result, the ability of benchmark indexes to make substantial gains without a rebound in technology is limited.
Looking ahead, market participants are watching for clarity on whether AI-driven disruption will translate into sustained earnings pressure for software businesses or whether a stabilization is imminent. Nvidia’s upcoming report and the near-term earnings calendars of other large software companies will be closely parsed for signals about demand, spending and the pace of change in AI-related markets.
Key points
- The S&P 500 technology sector is down 3.5% in 2026, its weakest start since 2022, with sharp divergence between software and chip/hardware groups.
- Software has been severely impacted by AI disruption fears; the software and services index is down 23% this year, while semiconductors and hardware are up 7% and over 4%, respectively.
- Nvidia’s quarterly report on Wednesday is viewed as a pivotal test for tech and broader market direction given its outsized influence among megacap stocks.
Risks and uncertainties
- Ongoing AI-related selloffs could continue to pressure software firms, affecting sectors reliant on software-driven revenues and valuations.
- Heavy investment in AI infrastructure by major tech firms raises uncertainty about returns on that spending, which has weighed on high-investment companies and could influence their stock performance.
- The market’s ability to advance materially is uncertain while technology - which comprises 33% of the S&P 500 - remains weak, even as other sectors have shown strength.