Call it the grand rotation.
After several years of tech giants getting bigger and bigger market caps and dominating the makeup of the S&P 500 (^GSPC) like never before, a different dynamic has emerged in 2026. The weight of the top 10 stocks in the S&P 500 has recently seen some “major deterioration” relative to the rest of the stock market, RBC Capital Markets strategist Lori Calvasina pointed out.
The top 10 stocks in the S&P 500 by weight are Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG) Class A shares, Alphabet (GOOGL) Class C shares, Meta (META), Broadcom (AVGO), Tesla (TSLA), and Berkshire Hathaway (BRK-B). The performance of these top names is often a barometer of market sentiment.
And sentiment on tech has soured as fears of overspending on AI infrastructure ratchets up.
Information technology is trading at its lowest valuation premium to the S&P 500 in the post-pandemic environment, according to Evercore ISI data. The price-to-earnings multiple for the “Magnificent Seven” is in line with its post-pandemic average, while the other 493 stocks in the S&P 500 trade near their all-time high valuations.
Investors have rotated out tech and into more value sectors such as healthcare, energy, and industrials. The Magnificent Seven basket of popular tech stocks has been the worst-performing group within the S&P 500, down close to 5%.
Meanwhile, the price-to-earnings growth ratio (PEG ratio) of megacap tech has declined to just 1.4 times, which matches the trough reached in 2022, Goldman Sachs strategists noted.
“In general, our December client meetings suggested to us that US equity investors are anticipating a rotation in market leadership and are interested in exploring sectors with valuation appeal,” Calvasina explained.
“We see risk of AI overspend/overhype as a risk to be vigilant on, especially since valuations and capex spend for the biggest market cap names have been near past peaks. For now, concerns that the AI trade is overdone appears to be fueling healthy rotation within the US equity market and risk management.”
The big question tech investors should be asking themselves now is if the pullback morphs into a full-fledged correction, loosely defined as a decline of 10% from the highs.
Read more: What’s ahead for stocks and gold in 2026? What experts are watching.
Most investors Yahoo Finance has talked with remain worried about spending levels on artificial intelligence and minimal signs of returns on that investment. Moreover, investors are bracing for tech companies such as Meta to materially hike capital expenditures guidance when they report earnings this week.
