GM guys…

This is AI Crypto Fire, the newsletter that explains why your portfolio might feel like it is stuck in the mud while your grandfather's boring industrial stocks are suddenly racing like a sports car.

We need to have a serious talk about the technology sector. For years, the strategy was simple because you just bought the dip and watched the chart go up to the right.

The tech giants were the unstoppable engine of the S&P 500 $SPX ( ▼ 0.33% ). But lately, that engine is sputtering.

Tech has gone from being the life of the party to the awkward guest standing alone in the corner.

Meanwhile, the unsexy parts of the market are having a massive breakout. Today we are going to break down exactly why this rotation is happening and if it is time to panic or time to open your wallet.

If you have been watching the charts since the start of 2026, you have likely noticed something strange. The tech sector is dragging its feet.

The underperformance is glaring, especially when you look at the Magnificent 7. We are talking about the titans like $AAPL ( ▲ 1.89% ), $MSFT ( ▼ 2.24% ), $GOOGL ( ▼ 1.0% ), $AMZN ( ▼ 0.54% ), $NVDA ( ▲ 1.61% ), $META ( ▼ 0.25% ), and $TSLA ( ▲ 2.25% ). These names have been sliding downward since late last year and it is getting ugly.

Because these companies are so massive, they usually dictate where the market goes. But right now, we are seeing a split reality.

The standard S&P 500 or $SPX hasn't moved much because it is weighed down by tech. However, the equal weight S&P 500 or $RSP ( ▲ 0.23% ), which treats every company the same regardless of size, is flying higher.

Goldman Sachs noted that these two indices are as uncorrelated as they have ever been. That means the market isn't crashing, it is just rotating violently.

There is never just one reason for a move this big, but we can pinpoint a few major factors. The first is that the tech trade simply got too crowded.

For three years, everyone piled into the same few stocks. Now that the global economy is heating up, money is chasing better value elsewhere.

The data backs this up. Deutsche Bank recently reported that sector funds excluding tech saw a record $62 billion in inflows during the first five weeks of this year alone.

That is more money than those sectors attracted in all of 2025 combined. That is not just a trickle of money, it is a flood.

It is not just the hardware giants taking a hit because software is getting absolutely crushed. Investors are terrified that new AI agents and tools will disrupt traditional software models.

The software ETF $IGV ( ▼ 3.55% ) is currently in a severe bear market and is down 30% from its October highs.

The sentiment is terrible right now. A JP Morgan analyst recently said the software sector is being sentenced before it has even gone to trial.

Investors are assuming the worst case scenario where AI eats everyone's lunch, and they are selling first and asking questions later.

Another major issue weighing on the sector is the massive price tag of the AI revolution. The market loves innovation, but it hates losing money.

Big tech companies have announced capital expenditure plans topping $600 billion for 2026. That is a staggering amount of money going into data centers and GPUs.

When $MSFT ( ▼ 2.24% ), $GOOGL ( ▼ 1.0% ), and $META ( ▼ 0.25% ) announced these spending plans, their stock prices plummeted. Investors are skeptical.

They are worried these companies are burning cash on a technology that might not pay off immediately.

Bank of America also highlighted that tech hyperscalers might issue up to $317 billion in new debt this year just to fund this build out.

We have officially entered a dangerous economic gap I call the "AI Air Pocket." For the last two years, the market rewarded companies simply for announcing they were buying chips.

That was the hype phase. Now we are in the deployment phase.

The problem is that there is a massive time lag between spending billions on infrastructure (CapEx) and actually generating profit from it (Revenue).

We are currently floating in that gap. The money is leaving the bank accounts of Big Tech to pay Nvidia, but the transformative products that generate new revenue streams are not ready for prime time yet. Investors hate this silence.

They see the cash burning, but they do not see the fire yet. This "air pocket" creates a vacuum where valuations drop because the promise of AI has not yet met the reality of the balance sheet.

The second deep argument is that the digital revolution has hit a physical wall. We spent a decade believing software was infinite and scalable with zero marginal cost. We were wrong. AI is physically constrained.

It turns out that you cannot code your way out of a power shortage. The AI boom requires massive amounts of electricity, copper, cooling, and physical data centers.

This has shifted the leverage in the market. The "boring" companies that own the power plants and the grid suddenly hold the keys to the kingdom.

Tech cannot grow without them. This explains the rotation, capital is fleeing the constrained software companies and flooding into the unconstrained physical infrastructure companies that are charging rent to the AI landlords.

This spending spree has a nasty side effect for shareholders because it kills buybacks.

For years, companies like $GOOGL and $META used their massive piles of cash to buy back their own stock, which artificially inflated the share price.

But now that cash is being used to buy $NVDA ( ▲ 1.61% ) chips instead. Mizuho analysts project that Google’s free cash flow will drop from over $73 billion in 2025 to just over $8 billion in 2026.

That is a massive evaporated cushion. Without buybacks to support the price, these stocks are much more vulnerable to selling pressure.

Despite all the doom and gloom, there is a silver lining. Tech is finally getting cheaper. The forward price to earnings ratio for the Nasdaq has cooled off significantly since October. If you are a contrarian, this is starting to look interesting.

Valuations are now sitting at levels that have historically been a floor for the market. Plus, we have a major event coming up. $NVDA reports earnings on February 25.

A strong report could remind everyone why they loved tech in the first place.

However, for a true reversal, we need to see proof that this massive AI spending is actually generating profit and not just hype.

Until then, do not be surprised if the boring industrial stocks continue to outperform the flashy tech names.

That is the state of the market right now. Keep your head on a swivel.

⚠️ Disclaimer: This newsletter is for informational purposes only, just for fun and knowledge. This is not investment advice. Your money, your responsibility!