AI Stock Basket Underperforms S&P 500 by 22% in Record Relative Decline

A recent wave of selling in artificial intelligence equities has pushed the sector’s relative performance against the broader market to a new low. A basket of AI stocks trailed the S&P 500 excluding those names by 22% over the last two weeks, the largest relative underperformance for the sector on record. The decline was driven by broad hedge fund liquidations, including a de-grossing event on Oct 22 that ranked as the 5th-largest of 2026 and the most substantial episode of long sales since September 2025.

The slump brings the total drawdown for the AI basket since June to 28%, erasing nearly all of the 100% year-to-date gains it had posted by the end of June. As investors debate the future cost of capital for the industry and the practical utility of AI tools, traders have begun rotating capital out of crowded tech positions and into defensive names and healthcare stocks.

How we got here

AI-led U.S. equity rally and market-concentration risk

Oct 28, 2026
Semiconductor Index Drops 17% as AI Infrastructure Sell-Off Widens
Oct 27, 2026
Neocloud Stocks Rebound From Early Slide After Musk's 'Guppy-Level Death' Warning

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If this story plays out

−0.1%Impact on the S&P 500 across 4 scenarios (−1.9% to +1.9%)

Scenarios

Each figure is the modeled move of the S&P 500 if the outcome occurs. For information only. Not investment advice.

If this story plays out

Scenarios

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4 ways this could read

Possible futures, not reported news · chances and moves from Tilt’s model

38%+0.3%
Orderly AI Repricing
Investors treat the record relative decline as a valuation reset rather than the start of a systemic unwind. Profitable AI leaders retain support, while richly valued and cash-burning AI infrastructure names continue to be repriced.
Technology +0.4% · Telecommunications +0.2% · Business Services +0.1%
27%−1.6%
Capex Backlash Deepens
The underperformance leads investors to question whether hyperscaler AI spending can generate adequate returns. Pressure builds on companies tied to GPUs, data centers, and AI cloud financing.
Technology −3.1% · Business Services −1.1% · Utilities −0.5%
20%+1.7%
Dip-Buying Revival
The magnitude of the underperformance attracts tactical buyers who argue that AI demand remains intact. Short-covering and valuation support help the AI complex outperform the broader market over the next few sessions.
Technology +3.3% · Business Services +0.7% · Industrials +0.4%
15%−0.6%
Rotation Away Persists
Portfolio managers continue reducing AI concentration after a year of elevated volatility and return-on-capital concerns. The S&P 500 holds up better than the AI basket as money moves into defensives and non-AI cyclicals.
Technology −1.6% · Healthcare +0.8% · Utilities +0.8%

Each figure is the modeled move of the S&P 500 if it happens. For information only. Not investment advice.

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