Is Tech Actually Selling Off?

This doesn’t look like a classic sell-off. 

The pressure has been selective, and largely concentrated in software; Names like ServiceNow, Autodesk, Palo Alto Networks, Salesforce and Oracle are down 20–30% year-to-date, quietly weighing on the technology component of the index. Even when The technology sector continues to deliver strong profit growth.

Two forces appear to be driving this repricing.

First, investors are becoming more disciplined about what they are willing to pay for growth. Earlier in the AI cycle, aggressive investment was rewarded, with heavy spending seen as a sign of future dominance. Now, the scale of AI infrastructure commitments - from data centres to advanced chips - is forcing a reassessment. When companies like Alphabet and Meta allocate enormous capital to AI expansion, near-term free cash flow inevitably tightens. Markets are beginning to ask whether the long-term payoff justifies the immediate cash impact.

Source: Morgan Stanley

At the same time, Morgan Stanley’s latest 13F analysis highlights a structural positioning gap. Mega-cap technology is the most under-owned relative to the S&P 500 in 17 years - not because investors don’t hold these stocks, but because they hold them at levels below their benchmark weight. , for example, now represents roughly 7% of the S&P 500, yet average active allocations sit at 3.6%. That difference is what defines the underweight. Nvidia shows the largest gap between its index weight and active ownership, followed by Apple and Microsoft. Even after the AI rally, many active managers remain positioned below index concentration, effectively underweight the very names driving the benchmark.

Underweight in an Overweight Index

Positioning inside tech is clearly split. Institutions are leaning toward AI infrastructure names - semiconductors and hardware beneficiaries of capex - while remaining lighter on broad software exposure. Meanwhile, capital has rotated into financials such as Citi and JPMorgan, signalling preference for sectors that benefit from higher rates and credit resilience.

That’s where the concentration paradox becomes hard to ignore. The S&P 500 continues to grow more concentrated in mega-cap names, yet active managers remain structurally underweight those very stocks. If mega-caps outperform, active underperformance widens and pressure builds. If they stall, managers look disciplined. 

Right now, the implicit bet is clear: many active managers don’t feel the need to own these names at benchmark weight. In an index this concentrated, that’s a bold position and bold positioning gaps rarely resolve quietly.