The US stock market remains heavily influenced by technology shares despite recent declines in artificial intelligence-related companies, with the sector continuing to represent more than one-third of the S&P 500.
A month of selling in technology and AI-linked stocks culminated this week in the S&P 500 information technology sector’s largest single-day decline in more than six years.
The retreat followed investor concerns that Democratic gains in the US midterm elections could delay or reduce data centre investment, an important contributor to demand for AI-related equipment and services.
Although technology’s weighting in the S&P 500 has decreased modestly, the sector still accounted for more than 35% of the index’s market capitalisation at Thursday’s close.
Technology’s Market Influence Remains Historically Elevated
Technology continues to have a substantial influence on the performance of the S&P 500 because of its large share of the index.
Its weighting remains above the level reached during the internet bubble in 2000, despite the recent reduction in market capitalisation.
Robert Pavlik, senior portfolio manager at Dakota Wealth Management, said weakness in artificial intelligence stocks could affect the wider market through the technology sector’s significant index representation.
“Because so much of technology is AI-sensitive, it’s going to have an impact on the entire sector, and that sector carries so much weight within the S&P 500,” Pavlik said.
“So weakness in AI is going to drag down tech, which drags down the S&P 500.”
The concentration means that movements in a relatively small group of major technology companies can influence the broader benchmark.
AI Investment Reaches Companies Outside Technology Classification
The S&P 500’s technology sector does not include every major company investing in artificial intelligence.
Alphabet (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and Meta Platforms (NASDAQ:META), which are investing heavily in data centre capacity, belong to other sectors of the index.
Their capital expenditure programmes contribute to demand for AI infrastructure and associated equipment.
Consequently, changes in expectations for AI investment can affect companies across multiple industry classifications.
The broader market’s exposure to artificial intelligence therefore extends beyond the technology sector’s reported weighting.
Technology Has Outperformed Since Bull Market Began
The technology sector’s current position reflects substantial gains since the US equity bull market began in October 2022.
Even after its recent decline, the sector has advanced more than 200% over that period, almost twice the increase recorded by the S&P 500.
Several companies associated with AI infrastructure have retained particularly large gains in 2026.
Sandisk (NASDAQ:SNDK) was approximately 250% higher year to date, while Dell Technologies (NYSE:DELL) had risen around 160%.
Micron Technology (NASDAQ:MU) had gained approximately 140% during the year.
The performance indicates that recent selling has reduced, but not eliminated, the gains accumulated by several AI-related companies.
Investors Consider Further Profit-Taking
The extent of previous share price increases means that investors may still have substantial gains available to realise.
Chuck Carlson, chief executive officer of Horizon Investment Services, highlighted this possibility.
“If somebody is in a profit-taking mode, there are still profits to be had,” Carlson said.
His comments indicate that the market could experience additional selling from investors seeking to realise gains accumulated during the previous rally.
The prospect of further profit-taking is particularly relevant to companies that have recorded large advances during 2026.
As US equities recovered somewhat on Friday, the S&P 500 was approximately 8% higher for the year, while technology stocks had gained around 11%.
Forward Earnings Multiples Decline Sharply
The decline in technology shares has also reduced the sector’s valuation relative to expected earnings.
LSEG Datastream data showed that the S&P 500 technology sector’s forward price-to-earnings ratio had fallen to 17.1 by Thursday.
The ratio had exceeded 32 in October 2025.
Meanwhile, the overall S&P 500 was trading at 17.9 times expected earnings for the following 12 months.
This marked the first time since 2017 that technology’s forward earnings multiple had fallen below that of the broader index.
The decline suggests that technology stocks have become less expensive relative to forecast earnings, although the measure depends on the earnings estimates used.
Any subsequent changes to those forecasts could affect the apparent valuation of the sector.
Truist Says Negative Expectations May Be Reflected in Prices
Keith Lerner, chief investment officer at Truist Advisory Services, suggested that the lower valuation of technology shares could indicate that investors have already accounted for substantial potential difficulties.
In a note published Thursday, Lerner said “arguably … the market is already pricing in a lot of bad news.”
He added that the decline in valuations could make the market more responsive to favourable developments.
“We are moving toward a situation where a little good news could go a long way,” Lerner said.
The comments suggest that the balance between negative expectations and potential positive developments may be changing following the sector’s recent decline.
However, uncertainty about AI infrastructure spending and corporate earnings remains an important consideration.
Technology Performance Continues to Shape Market Outlook
Despite recent selling, technology remains the largest component of the S&P 500 and continues to exert considerable influence on the US stock market.
The sector’s substantial gains since October 2022 mean that some investors still hold positions with significant accumulated profits.
At the same time, lower forward earnings multiples have changed how technology valuations compare with those of the broader market.
The outlook will depend partly on whether AI infrastructure investment continues at the anticipated pace and whether corporate earnings support existing forecasts.
Given technology’s weighting and the additional AI exposure found in other sectors, developments across the artificial intelligence industry are likely to remain relevant to the performance of the S&P 500.