Technology shares, which had driven much of the market’s momentum earlier this year, came under significant selling pressure in February. Concerns over lofty valuations and uncertain returns on Big Tech’s massive AI investments weighed on sentiment, prompting investors to rotate toward more traditional, defensive sectors.
“The market is grappling with questions about AI and its impact across industries,” said Anthi Tsouvali, multi-asset strategist at UBS Global Wealth Management. “There is a clear rotation toward companies with lower IT exposure, in sectors considered more defensive.”
The pressure on tech stocks was reflected in Friday’s trading. Nvidia slid 2.8% after a steep 5% drop in the previous session, despite reporting strong earnings, highlighting the fragile risk appetite surrounding AI-focused firms. The S&P 500 information technology index tumbled 1.3%, while the financial sector declined more than 2%, with both set for substantial monthly losses.
At 10:13 a.m., the Dow Jones Industrial Average fell 632.36 points, or 1.28%, to 48,866.84. The S&P 500 lost 43.68 points, or 0.63%, to 6,865.18, and the Nasdaq Composite dropped 164.86 points, or 0.72%, to 22,713.52. If these losses hold, the Dow would snap a nine-month winning streak.
Market volatility was further amplified by geopolitical and policy developments. Last week, the U.S. Supreme Court voided most of the tariffs imposed by former President Donald Trump in 2025, leading him to implement a temporary global tariff of 10%, effective Tuesday.
Inflation data also weighed on sentiment, as producer prices in the U.S. climbed more than expected in January, signaling the potential for rising costs in the months ahead. In response, UBS downgraded its recommended allocation to U.S. equities to neutral, citing high valuations and the relatively limited sensitivity of corporate earnings to global growth.
Most megacap and growth stocks ended the week lower. The Philadelphia SE Semiconductor Index fell 2% after reaching a record high earlier in the week. Zscaler plunged 14% following a wider-than-expected net loss in its second quarter, and the broader software index declined 2%.
However, some firms saw gains amid restructuring or strategic moves. Netflix rose 9% after exiting the bidding battle for Warner Bros Discovery, which itself dropped 2%. Paramount Skydance climbed 4.7% after securing key TV and film assets, while Block surged 16% following an announcement to cut nearly half its workforce and expand AI integration. Dell shares jumped 16.6% after projecting a doubling of revenue from its AI-optimized server business in fiscal year 2027 and promising increased shareholder returns.
Overall, declining issues outnumbered advancing stocks by a 2.05-to-1 ratio on the NYSE and 2.57-to-1 on the Nasdaq. The S&P 500 posted 25 new 52-week highs and one new low, while the Nasdaq Composite recorded 32 new highs and 61 new lows, reflecting the uneven market sentiment.