Why Tech Stocks Are Falling Despite Record Profits

When you walk onto the New York Stock Exchange floor on a Thursday afternoon in late March 2026, the numbers that scroll across the screens reveal a story that defies logic. Meta Platforms saw an 8% decline. Nvidia is down four. Three and a half Alphabet sinks. Amazon is down two spots. These aren’t struggling businesses with underwhelming quarterly results. They make money at a rate that most industries would consider science fiction, making them some of the most lucrative companies in human history. Nevertheless, the money is disappearing. The rotation out of tech has been happening steadily, purposefully, and without much drama for weeks. As a result, the Nasdaq is now more than ten percent below its all-time high. This is what professional investors formally refer to as a correction, which sounds almost courteous considering what it actually means for portfolios built on the presumption that Big Tech would continue to rise indefinitely.

Early in February, Advanced Micro Devices reported quarterly earnings that exceeded analyst expectations on both profit and revenue, which was the most startling single data point of the selloff. It also provided forward guidance that exceeded projections. It was a solid report from a well-run business by any reasonable standard. The stock fell 17.3%. The suspicion spreading on Wall Street was that AMD had simply priced in more optimism than any single quarter, no matter how strong, could possibly deliver. AMD’s share price had nearly doubled over the previous twelve months. This condition has a name. It is a problem that spreads and is known as overvaluation.
The price-to-earnings multiples that tech stocks have been carrying require not only strong performance but also remarkable, consistent, year-over-year growth that only increases. That premise has always been shaky, and it appears even more shaky now. “Money’s coming out of this big behemoth,” stated Keith Lerner, chief investment officer at Truist. Money is leaving technology. He was referring to a rotation, which is a type of portfolio reorganization that, once it starts, tends to pick up speed as institutional investors shift their focus from industries that have dominated for years to those that have been steadily gaining traction without garnering the same intense attention. So far this year, energy stocks have increased by 22%. ExxonMobil and Chevron have both increased by about 20%. Industrials and materials have increased by 14–15%. Walmart reached a record high. In a world where oil prices have increased from about $70 to over $100 per barrel since the start of the Iran war, none of those actions made the front page the way an Nvidia earnings report does, but they have been real and represent true demand.

Even the most lucrative tech balance sheet is unable to fully account for the uncertainty brought about by the Iran conflict. Approximately one-fifth of the world’s oil passes through the Strait of Hormuz, which has been under pressure for weeks. Depending on what Trump or Iranian officials say over the past few hours, the market’s mood swings sharply between cautious hope and renewed anxiety. The ten-year Treasury note yield has increased from 3.97 percent prior to the start of the war to 4.43 percent. In addition to being detrimental to borrowers, rising yields reduce the present-value of the future earnings that support high stock valuations, and tech companies are essentially priced more on future earnings than nearly any other industry. Every increase in the ten-year yield is a subtle justification for selling technology and purchasing an item with current cash flows as opposed to future promises.
The most peculiar aspect of the current selloff may be the AI disruption issue, which raises the possibility that AI poses a real threat to some of the software companies that established the industry’s dominance rather than just being a boon for tech stocks. So far this year, the Tech Software Sector ETF has dropped 23%. Following Anthropic’s announcement of a new security tool, cybersecurity companies that were market favorites a year ago were hit in a single session; CrowdStrike dropped five percent, Zscaler nearly six, and Cloudflare three and a half percent. The growing concern that AI models will cannibalize software subscription revenue—that is, that enterprise tools that businesses have been paying monthly fees for will just be replaced by AI agents that perform the same task without a contract—is known as the “AI scare trade,” as traders have begun to refer to it. This worry might be exaggerated. The market is starting to price that in, industry by industry, company by company, and it’s also possible that it’s exactly right.
This has a historical resonance that is noteworthy. Technology stocks rose on real innovation and real revenue growth in the late 1990s. They then continued to rise on narrative and expectation until the discrepancy between price and underlying reality became intolerable. The companies’ lack of innovation prevented the dot-com collapse. It occurred as a result of valuations moving so far ahead of earnings that they could only be justified by an ideal future. Although the current state of affairs is different—the tech behemoths of today are profitable, sometimes extremely so—the pattern of prices exceeding fundamentals until a correction brings them back into alignment is not new.
The current irony of companies like Meta and Alphabet reporting some of the best quarterly results in their history while witnessing a decline in their stock prices is difficult to ignore. In terms of financial penalties, the social media addiction trial that held YouTube and Meta accountable for harm done to minors hardly affected the companies; however, it increased the legal and regulatory exposure of stocks that investors already thought were overextended. The fines were minimal. It was not a sign that courts are now prepared to hold Big Tech accountable for product damages in ways that encourage additional legal action.
It’s really unclear where the money goes from here. Strategists at UBS are still optimistic, citing the continuation of the easing cycle and anticipating that profit growth will spread across industries. Growth stocks would eventually benefit from two to three Fed rate cuts in 2026, according to Polymarket traders. However, relief in the bond market would necessitate either the resolution of the Iranian situation or the easing of inflation concerns, neither of which appear likely. Money is currently moving away from the industry that has shaped the market’s character for the better part of a decade and toward energy, materials, defense, and consumer staples. Those tech companies continue to make incredible profits. At the prices they were trading at six months ago, the willingness to pay for the potential future profits has quietly and dramatically decreased.