The S&P 500 excluding AI stocks closed at an all-time high on Friday and gained 8% in October for its strongest monthly performance since 2022, diverging from an October rout that sent AI stocks down more than 13%. Although AI-related companies make up roughly 48% of the benchmark index, the S&P 500 excluding AI is now up 14.2% year to date, outpacing an 11.8% gain for the broader S&P 500 and 13.9% for the equal-weighted index. A basket of AI stocks has trailed the S&P 500 excluding AI by 22% over the past two weeks and 28% since June, while the Philadelphia Semiconductor Index closed below its 200-day moving average on Friday for the first time since June 2025.
The divergence reflects a rotation out of AI infrastructure spending plays rather than broad equity liquidation. Technology stocks recorded $11B in outflows led by $5B in selling in Nvidia and $3.6B in Alphabet, while the rest of the market drew $29.4B in inflows and buyers added $1.6B to Apple. That shift pushed Apple to a $5.03 trillion market capitalization at Friday’s close, overtaking Nvidia at $4.94 trillion as the world’s most valuable company. At the same time, global hedge funds have reduced long and short positions by more than 8% of total gross exposure since June, the largest unwind since at least 2017 in Morgan Stanley prime brokerage data, taking gross leverage for US long/short funds to the 10th percentile over the past year.