Tech sector plunges 2% on AI boom sustainability fears
Cisco's worst day since 2022 and Apple's $200bn market cap loss lead sector-wide sell-off
The technology sector suffered its steepest decline in months on Thursday, as concerns over the sustainability of the artificial intelligence boom triggered a broad-based rotation out of high-flying tech stocks.
The Nasdaq-100 ETF (QQQ) dropped 2.03% to $600.64 on heavy trading volume of 80.6 million shares—significantly above its 58.6 million-share average—as investors reconsidered the sector's lofty valuations. The sell-off erased roughly $252 billion from the combined market capitalization of major technology companies.
Cisco Systems led the declines, plunging 12.3% in its worst single-day performance since 2022, after the networking equipment giant issued lukewarm guidance and warned that rising memory prices are squeezing profit margins. The steep drop in Cisco shares, which dragged down semiconductor and hardware stocks across the sector, reignited fears that the AI infrastructure boom may be hitting profitability headwinds.
Apple shares tumbled 5%, suffering a $200 billion market-cap wipeout as investors questioned whether the iPhone maker can maintain its dominance in an AI-driven landscape. The decline marked Apple's worst single-day drop since September and came amid growing skepticism about the company's AI strategy compared to competitors like Microsoft and Google.
The sector-wide weakness reflects broader concerns about AI disruption and the sustainability of the recent tech boom. After a torrid rally that pushed many technology stocks to record highs, investors are increasingly focused on near-term profitability challenges rather than long-term growth promises.
"We're seeing a repricing of AI-related risk," said analysts at Morgan Stanley in a note to clients Thursday. "The market is moving from uncritical enthusiasm to demanding evidence of actual returns on AI investments."
Thursday's sell-off represents a significant shift in sentiment from just weeks ago, when optimism about AI applications and cloud computing drove the technology sector to multi-year highs. The rotation has been particularly sharp in networking equipment and semiconductor stocks, which had outperformed the broader market in recent months on expectations of robust AI infrastructure spending.
The heavy trading volume behind Thursday's decline—nearly 40% above average—suggests institutional investors are driving the rotation rather than retail panic selling. Many portfolio managers had overweight positions in technology stocks following the sector's strong performance in late 2025 and early 2026, positioning Thursday's move as a potential rebalancing event.
Despite the steep losses, some analysts view the pullback as a healthy correction after the sector's extended rally. "The fundamentals remain strong for many of these companies," analysts at Goldman Sachs noted. "But valuations had become stretched, and today's move brings prices closer to reality."
Technology sector ETFs saw outflows of roughly $4.2 billion on Thursday, according to data from ETF.com, with the heaviest selling concentrated in funds focused on semiconductors and cloud computing. Investors rotated into defensive sectors including utilities and healthcare, which posted modest gains in afternoon trading.
Looking ahead, market participants will be closely watching first-quarter earnings results from major technology companies for signs that AI investments are translating into meaningful revenue growth. Cisco's margin pressure and Apple's market-cap loss Thursday may foreshadow a more demanding earnings season, as investors seek concrete evidence that the AI boom can sustain its momentum.