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Tech companies drove US stocks higher on Tuesday, as investors granted the software industry a reprieve after weeks of selling on fears that AI would decimate the sector.
The S&P 500 ended the day up 0.8 per cent with the S&P tech sub-index up 1.2 per cent. The S&P software index rose 1.8 per cent but remains down by nearly 24 per cent on the year.
Software stocks have been hammered in recent weeks as investors have fled sectors seen as vulnerable to disruption from AI and sought out businesses with tangible assets. Utilities, energy and materials stocks have all emerged as winners from the AI anxiety gripping Wall Street.
Prior to the modest turnaround on Tuesday, the S&P 500 software sub-index on Monday fell to its lowest level since the immediate aftermath of President Donald Trump’s “liberation day”. After the tariff announcement last April the index lost $1.2tn in combined market capitalisation in less than a month.
The software sector has borne the brunt of worries that new AI tools could upend entire industries. Those concerns have also rocked wealth managers and insurers.
But the S&P 500 electric utilities sub-index is up more than 9 per cent this year, while energy stocks have gained about 20 per cent, as sectors with substantial physical assets find themselves back in vogue after years of underperformance relative to asset-light tech business.
“All these capital-light businesses that could scale historically are also the ones that could be easily disrupted,” said Guillaume Jaisson, European strategist at Goldman Sachs.
On the other hand, “capital-heavy businesses are difficult to replicate, it takes time”, Jaisson said.
“They are more insulated from the risk around AI,” he added, labelling the buoyant sectors as “Halo” stocks: heavy asset, low obsolescence.
The tech-heavy Nasdaq index rose about 1 per cent on Tuesday as stocks rebounded from Monday’s losses.
US software companies Intuit, AppLovin, Gartner and Workday have all dropped nearly 40 per cent this year. Power company Generac Holdings and glassmaker Corning Inc are among the S&P’s biggest gainers this year. Oil groups Exxon and Chevron are up about 20 per cent in 2026.
Alex Temple, a credit portfolio manager at Allspring Global Investments, said the flash sell-offs were a symptom of investors crowding into sectors they did not fully understand and then overreacting to predictions of AI disruption — such as the blog post from Citrini Research that sparked Monday’s software meltdown.
“It’s late-cycle behaviour, a lot of people will be invested in things that they don’t know a lot about,” Temple said, adding that the software selling had been driven by “Fobo”, or the “fear of becoming obsolete” due to AI advances.
The market reaction to the Citrini piece, which was “littered with really bad analysis” and a “misreading of macroeconomics”, spoke to “market structure and who is driving prices these days”, said George Pearkes, a macro strategist at Bespoke Investment Group.
“It’s hard to draw super hard conclusions here except that the buyers of these stocks [have] a very low-risk budget and are trigger happy,” Pearkes said.
He added that the market was increasingly driven by “pod shops”, or multi-strategy hedge funds that have many teams operating almost autonomously. Those funds had little tolerance for market drawdowns, said Pearkes.
“There are rotations going on in the stock market, but I’m not sure if they’re durable,” said Pearkes.
