A significant rotation out of artificial intelligence-linked stocks has reshaped market dynamics in late October 2026, with a Goldman Sachs proprietary index tracking the S&P 500 excluding AI-enabler stocks briefly surpassing the traditional S&P 500 index [1]. Through October 22, the ex-AI index gained 12.4% compared to the standard S&P 500's 12% gain, with the two indices now running neck-and-neck as tech rallied in Monday trading [1]. This represents a dramatic reversal from earlier in the year when the ex-AI index significantly lagged the S&P 500, as investors had favored chipmakers, cloud-computing companies, and other AI-benefiting firms [1].
The momentum shift reflects deteriorating sentiment toward the AI trade and heavy capital expenditure commitments by major technology companies. The S&P 500 tech sector has declined approximately 7% in October alone, while tech and AI-related companies comprise roughly 45% of the S&P 500's weighting [1]. Specific casualties include Meta Platforms, whose shares fell nearly 7% on Thursday following announcements of increased capital expenditure and additional share issuance plans [1]. Companies supplying power and equipment for AI infrastructure—including GE Vernova, Bloom Energy, Vistra, and Quanta Services—have experienced steep declines during the recent selloff [1]. Additionally, investors have soured on debt and equity issued by AI infrastructure companies like CoreWeave and Oracle [1].
Investors are actively rotating capital into defensive sectors and non-AI exposure. Defensive ETFs including State Street Consumer Staples Select Sector SPDR ETF, State Street Health Select SPDR ETF, and State Street Utilities Select Sector SPDR ETF have gained 7% to 10% this month, while the energy sector is ahead 10% [1]. According to Oppenheimer technical analyst Ari Wald, "the AI pendulum has swung back in favor of non-AI exposure over the last two weeks" as of October 24 [1]. Oppenheimer has upgraded commercial services and insurance to overweight status, recommending specific stocks including Republic Services, Cintas, Verisk Analytics, Broadridge Financial Solutions, MetLife, and Arthur J. Gallagher [1]. Berkshire Hathaway's Class B shares have risen 8% this month, capitalizing on the rotation away from technology, though the company remains behind the S&P 500 year-to-date [1].
CONCLUSION
The AI trade's momentum has decisively reversed in late October 2026, with non-AI stocks briefly outperforming the broad market as investors flee expensive technology valuations and heavy capex commitments. This rotation into defensive sectors and away from AI-linked companies represents a significant market inflection point, with major financial institutions and analysts now recommending diversification away from concentrated AI exposure. The shift underscores growing investor concern about the sustainability of AI-driven valuations and capital intensity in the technology sector.