Non-AI Stocks Match S&P 500 Returns as Tech Slumps

A proprietary Goldman Sachs index tracking the S&P 500 without AI-enabling stocks briefly outperformed the standard index this year before falling behind it again. The ex-AI measure gained 12.4% through October 22, slightly exceeding the S&P 500's 12% return. However, the standard index reclaimed the lead during Monday's trading session as technology stocks rallied.

Tech and AI-related companies currently represent approximately 45% of the S&P 500. This heavy weighting has driven index performance for years but has become a drag in recent weeks. The S&P 500 tech sector is down roughly 7% this month, a period during which other sectors have maintained stability. Investors have grown wary of debt and equity issued by firms such as CoreWeave and Oracle. Meta Platforms shares dropped nearly 7% on Thursday after the company outlined plans for heavy capital expenditure and additional share issuance.

Suppliers of power and equipment for AI infrastructure have suffered significant losses. GE Vernova, Bloom Energy, Vistra, and Quanta Services all posted steep declines during the recent selloff. The ex-AI index lagged the S&P 500 for most of the year as investors favored chipmakers and cloud-computing firms. That advantage narrowed and disappeared last week, marking a shift in market dynamics.

Investors are moving money into defensive areas of the market. State Street Consumer Staples Select Sector SPDR ETF, State Street Health Select SPDR ETF, and State Street Utilities Select SPDR ETF have all risen between 7% and 10% this month. The energy sector is up 10%, a gain partly attributed to the ongoing conflict in Iran. Oppenheimer technical analyst Ari Wald noted in a note on October 24 that the AI pendulum has swung back in favor of non-AI exposure over the last two weeks.

Oppenheimer recently upgraded commercial services and insurance to overweight ratings. The firm recommends positions in Republic Services, Cintas, Verisk Analytics, Broadridge Financial Solutions, MetLife, and Arthur J. Gallagher. Berkshire Hathaway is also benefiting from the rotation away from tech. Its Class B shares are up 8% this month, though they still trail the S&P 500 for the year. Berkshire’s diversified portfolio includes Geico, Burlington Northern Santa Fe, and a $364 billion stock holding that spans Apple, Coca-Cola, Alphabet, and Bank of America.

Trivector Research identifies potential in non-tech compounders. Eli Lilly stock is up 22% on the strength of its weight-loss drugs. The company plans to file for FDA approval for a next-generation obesity drug early in 2027. Viking Holdings, a cruise operator, is also demonstrating durability. The company stated on its August earnings call that 40% of its river capacity and 60% of its ocean capacity is already booked for 2027. Viking shares are up 15% this year and trade around $82, below the average Wall Street target of $109. Barclays recently upgraded the stock to overweight with a $102 target, citing its compelling risk and reward profile.