AI tech stocks stay pricey as early 2026 shifts toward other sectors

In short: AI-linked tech stocks are still valued very highly after a big 2025 run, but early 2026 returns suggest investors are starting to move money into other parts of the market.

What's going on

Tech stocks rose sharply in 2025, helped by heavy spending on AI. Morningstar said tech was the second-best performing US sector that year, and a lot of the gains came from the “Magnificent Seven,” a small group of huge companies like Apple, Microsoft, and Nvidia.

That run-up left many AI-focused stocks looking expensive, meaning their prices are high compared to the profits they currently generate. Some Wall Street voices remain optimistic anyway. Wedbush analyst Dan Ives has said tech stocks could rise another 20% to 25% in 2026, and he argues that companies like Nvidia and major cloud providers (big rented computer systems, like paying for electricity instead of building your own power plant) are still central to AI spending.

But the market is sending a more mixed signal so far in 2026. Morningstar data shows tech is down about 0.4% year to date, the weakest sector, while basic materials are up about 9.05%, with industrials and energy also leading. Morningstar strategist Michael Arone describes this as a “rotation,” meaning money is shifting from large tech stocks into smaller companies and other sectors.

What to watch

The key question is whether 2026 becomes a “prove it” year for AI leaders, where they turn AI excitement into steady profits. If results disappoint, high prices can fall quickly, especially when gains are concentrated in a few giant stocks.

Source: NYTimes