Tech Sector Struggles Weigh Down Market as Nvidia Earnings Await

Technology stocks are experiencing their worst start since 2022, with software companies particularly hard hit by artificial intelligence disruption concerns. Nvidia's quarterly earnings report on Wednesday could determine the sector's direction, as the chip giant serves as a key indicator for AI-related investments.

NEW YORK, Feb 25 (Reuters) — Technology stocks have gotten off to a rocky start in 2026, dragged down by concerns over artificial intelligence disruption and investor interest in previously overlooked sectors. However, the broader market may find it difficult to achieve significant growth without support from the influential tech industry.

Wednesday’s quarterly earnings from Nvidia represent a crucial moment for technology stocks, as investors question whether the AI-driven sell-offs have gone too far and when struggling stocks might recover. As the semiconductor leader and world’s most valuable company by market cap, Nvidia serves as a key AI indicator whose financial performance and future guidance could send waves throughout the entire sector.

“AI will continue to disrupt the world but I don’t think it’s the end of the world,” explained Ken Polcari, partner and chief market strategist at Slatestone Wealth in Jupiter, Florida. “Like every industrial revolution, there will be anxiety going through it, but then when it comes out the other side, there will be new opportunities.”

The technology portion of the S&P 500 has declined 3.5% year-to-date, marking its poorest opening performance since 2022, when stocks dropped widely as the Federal Reserve began raising interest rates.

Performance within the tech sector has varied significantly. Software firms have taken a beating due to worries that emerging AI technologies will disrupt their business models.

The S&P 500 software and services index has fallen 23% in 2026 so far, representing the group’s worst year-to-date performance on record. Among major software stock declines, Intuit shares, with earnings scheduled for Thursday, have plummeted approximately 46% this year. Salesforce stock, reporting Wednesday, has fallen 30% year-to-date.

However, some positive signals have appeared for investors. Despite shares being affected by a research report emphasizing AI-related threats, the group saw modest gains Tuesday after Anthropic announced new tools developed with partner companies.

Two additional technology subsectors — semiconductors and equipment, plus hardware — have gained 7% and more than 4%, respectively, in 2026.

The performance gap between semiconductor and software stocks has reached unprecedented levels.

Nvidia also stands as the largest member of the “Magnificent Seven” megacap group, which includes Alphabet, Apple and Tesla.

These companies drove much of the current bull market that started in October 2022, attracting investors with their exceptional earnings growth and market advantages.

“Nvidia’s earnings matter because they are kind of the linchpin of the Mag Seven,” stated Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

However, Magnificent Seven stocks have shown weak performance in 2026. Nvidia leads the group with gains exceeding 3%. Among other Mag 7 companies, Amazon has dropped about 10% and Microsoft has fallen nearly 20%, making it the largest individual contributor to S&P 500 underperformance this year through Friday, according to S&P Dow Jones Indices.

Beyond software industry concerns, Microsoft shares have been pressured by fears that the company’s substantial AI infrastructure investments won’t generate adequate returns. Similar spending concerns have affected Amazon, Alphabet and Meta Platforms.

Technology’s challenges have coincided with investor rotation into other market sectors that had been underperforming during most of the bull market.

Since tech stocks peaked in late October last year, the sector has dropped roughly 10%. During the same period, materials and energy have both risen more than 20%, while industrials and consumer staples have each climbed well above 10%.

Backed by these sectors, the benchmark S&P 500 has remained relatively flat since late October despite technology’s troubles.

Despite tech’s modest returns this year, the sector continues to play a vital role in major index performance. Technology holds a 33% weight in the S&P 500; financials rank as the second-largest of the 11 sectors with a 12.4% weighting.

This means that while other sectors perform well, benchmark indexes will struggle to advance meaningfully without technology sector participation.