After a hot run driven by artificial intelligence (AI), technology stocks are now showing weakness, with widespread losses as technical indicators suggest more downside ahead.
Over the past year, tech stocks have led the market as investors bet big on the AI boom spearheaded by players like Nvidia (NASDAQ: NVDA).
However, equities are experiencing volatility alongside the broader market, raising concerns about whether the sector is ripe for a correction.
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Technology stocks form concerning pattern
Now, a major warning signal has emerged from the S&P 500 Technology Sector ETF, which has formed a bearish death cross for the first time in over three years.
This ominous technical pattern, where the 50-day moving average (MA) crosses below the 200-day MA, has historically led to bearish momentum.
The last time the ETF experienced a death cross, it triggered a 25% decline over the following seven months. Interestingly, this pattern has emerged barely a week after Nvidia formed a similar one.
Technology’s downside is partly driven by trade tariff uncertainty, profit-taking, and the possibility of fading AI hype. Amid these concerns, attention has turned to whether tech stocks will repeat their historical performance when the death cross last formed.
At the same time, in an X post on March 29, technical analyst J.C. Parets noted that weakness in technology stocks and high-beta names, which began last summer, shows no signs of reversing.
He pointed out that tech’s relative performance against the broader S&P 500 has hit new cycle lows, a concerning trend for the sector. High-beta stocks have also dropped to fresh cycle lows compared to low-volatility stocks, signaling a market shift toward defensive positioning. Notably, high-beta stocks come with higher risk and reward.
With market conditions seemingly not improving anytime soon, especially with Donald Trump’s threat of new tariffs, the sector appears bound for a prolonged downturn, raising the question of whether a bubble burst is imminent.
As of March 24, data from Global Market Investor showed that the technology sector in 2025 has underperformed the S&P 500 by 5.9%, marking the biggest margin in nearly 20 years. Historically, during periods of heightened risk, investors tend to offload their most profitable yet riskiest stocks.
Analysts take on tech stocks future
On the other hand, market players remain divided on the tech sector’s next move. As reported by Finbold, American trend forecaster Gerald Celente warned that investors should expect a crash in 2025 triggered by AI, resembling the 2000 Dot-com bubble burst. According to Celente, this downturn will be driven by economic instability and geopolitical tensions.
On the other hand, some analysts, including BMO’s chief investment strategist Brian Belski, argue that calling the current market a bubble might be overstretched.
Speaking to Business Insider, Belski noted that rising asset prices alone don’t signal an impending burst. Unlike the dot-com era, today’s market lacks reckless M&A activity, overvalued IPOs, and excessive investment bank profits.
“The market has been humbled for much of the last 30 years, and every single time the market goes up, investors say ‘Oh it’s gonna go down! It’s gonna go down.’ That’s massively different than the late 1990s,” Belski said.
Similarly, banking giant Goldman Sachs has dismissed comparisons to the dot-com bubble, arguing that today’s tech sector isn’t experiencing the same level of speculation seen 25 years ago. The firm emphasized that tech fundamentals remain strong, with stable valuations and earnings growth.
Goldman Sachs pointed out that the 2000 downturn was characterized by excessive speculation and unrealistic revenue expectations.
Meanwhile, stocks like Nvidia have faced losses after leading the market in 2023 and 2024. However, the company maintains solid fundamentals, including strong revenue growth and optimistic estimates. Its next-generation Blackwell chips continue to see massive demand as the firm remains the undisputed AI leader.
Featured image via Shutterstock
