GM. This is Milk Road Macro, the newsletter that explains why tech feels like a soggy French fry while the “boring” sectors are suddenly the crispy ones.
Here’s what we’ve got for you today:
- ✍️ Everything you need to know about tech and why it’s underperforming.
- 🎙️ The Milk Road Macro Show: Is This the Start of a New Commodity Supercycle? w/ Clem Chambers.
- 🍪 Trump said Fed pick Warsh can drive 15% annual growth.
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EVERYTHING YOU NEED TO KNOW ABOUT TECH AND WHY IT’S UNDERPERFORMING
Why is tech so soggy?
Tech has been the clear U.S. stock market favorite for investors for several years.
It has raced ahead of the rest of the market - and powered the S&P 500 higher and higher since late 2022.
But now - things have changed.
Tech has quickly moved from the darling of the stock market family to the ugly, unloved sibling.
And the “boring” parts of the market are now significantly outperforming.
So what’s going on?
Why is this happening?
And is tech a good buy right now?
Let’s take a look…
What’s going on with tech?
Tech has been soggy for several months now - and particularly since the turn of the year.
It’s been underperforming, while other cyclical sectors (including industrials, transports, small-caps, materials, energy) have ripped higher.
The underperformance is particularly stark when looking at the Magnificent 7 (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, Tesla), which forms a large part of the U.S. tech sector sphere.
The Mag 7 as a group has been dropping lower since late 2025.
Because tech is such a large portion of the S&P 500, this ongoing tech underperformance is weighing down on the index, even as other sectors fly higher.
This can be seen through looking at the S&P 500 SPX (very tech-heavy due to the huge market cap size of tech) - which hasn’t really moved very far in recent months.
And the equal-weight S&P 500 RSP (dampens tech’s dominance within the index, and boosts other sectors) - which has moved meaningfully higher.
SPX and RSP are currently about as uncorrelated as they’ve ever been, according to Goldman Sachs - highlighting the rarity of tech’s current underperformance.
It’s unlikely that SPX will be able to pull off a strong move higher without tech pulling its weight.
But why is tech lagging so much?
There are a number of plausible reasons as to why tech is lagging.
1. Crowded positioning
Tech charged ahead of the field for three years before late 2025 - as other sectors lagged behind.
This led to investor positioning being heavily concentrated and crowded into tech.
But in 2026, flows into non-tech sectors have exploded higher, as a business cycle expansion kicks into gear - while flows into tech have slowed.
According to Deutsche Bank:
“Sector funds excluding tech have seen a record $62B in inflows in the first five weeks of the year - to put that in context, that’s more than they saw in all of 2025 (just over $50B).”
This could potentially be a signal that the rotation out of tech and into cyclicals may be approaching at least a temporary peak.
2. Software smash
Tech weakness has been heavily concentrated in software names, as investors fret about disruption from new AI tools.
IGV (software) is now in a severe bear market - down 30% from its October 2025 highs.
According to JP Morgan analyst Toby Ogg:
“We are now in an environment where the [software] sector isn’t just guilty until proven innocent - but is being sentenced before trial.”
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EVERYTHING YOU NEED TO KNOW ABOUT TECH AND WHY IT’S UNDERPERFORMING (P2)
3. Big CapEx is bad now, apparently
The market appears to be penalizing big capital expenditure numbers - at least for now.
In recent weeks, big tech names (Microsoft, Google, Meta, Amazon) announced massive CapEx numbers for 2026 topping $600B - well above expectations.
But the stock price of all these companies was hammered after the announcements.
Up until recently, the market had viewed growing CapEx as a good thing for the companies involved.
But now, it’s being met with intense skepticism.
And there are also some concerns over more and more debt slowly creeping into the picture to finance AI build-out capital spending.
As much as $317B in tech hyperscaler debt could be issued this year, according to Bank of America - a significant shift from recent years.
4. Less free cash flow
Big CapEx numbers mean drastically reduced free cash flow.
That’s across the board for most mega-cap tech, but particularly:
- Google’s free cash flow is projected to plummet from $73.3B in 2025 to $8.2B in 2026, according to analysts at Mizuho.
- Meta is also expected to see a roughly 90% drop in free cash flow in 2026, with some analysts predicting negative free cash flow through this year and 2027.
5. Less buybacks
Cratering free cash flow also means less buybacks.
Buybacks have been a big driving force for tech stocks in recent years, as the cash-printing Mag 7 behemoths gobbled up huge piles of their own stock - but now the money that would have been used for buybacks (directly boosting the stock price) is now being used for CapEx (impact on stock price less certain).
6. Earnings are improving elsewhere
The earnings outlook backdrop is looking much better for non-tech sectors.
In 2026, other companies are expected to stage a big catch-up to the Magnificent 7.
This is not because of any slowdown in Mag 7 earnings growth, but because the “other 493” are expected to roughly triple their growth.
But is now a good time to buy tech?
Tech, and particularly software, has taken a hit.
From a contrarian perspective, now could be a good time to look for tech opportunities.
If we look at valuations for large-cap tech as a whole - the Nasdaq forward price to earnings multiple has fallen hard since October 2025.
Valuations are now much more attractive than they were a few months ago, on a relative basis.
If you don’t believe we’re heading into an imminent bear market and you believe in tech as a good bet for 2026, valuations are now sitting roughly around the level where they have found a footing in recent years - so now could be a good time to buy.
Nvidia earnings (February 25) could also be a spark to relight the fire under tech.
However, for tech (as a whole) to really start to motor and start outperforming other sectors again, a couple of things probably need to happen:
- Clear evidence AI CapEx is directly producing measurable profit uplift (margins + revenues, not just spend and promises).
- Software companies prove to the market that they can defend pricing amid potential disruption from AI (or monetize AI fast enough to offset disruption fears).
Wrapping up
Tech is soggy - there’s no doubt about that.
There are a number of plausible reasons for that, including: crowded positioning, the “software smash”, big CapEx being penalized, less buybacks, and improving earnings outlook elsewhere.
But tech valuations have dropped in recent months - making tech look more attractive now than it has done in a while.
However, on a number of occasions recently (here, here, and here) - I have outlined that I think 2026 will be a year for broadening out.
I still think the general picture for 2026 will be: tech/mega-cap underperformance, and cyclical outperformance.
I still think there are better opportunities in other sectors for the medium-term.
That’s it for this edition - catch you in the next one.
IS A NEW COMMODITY SUPERCYCLE STARTING? 🌍
In today’s episode, we sat down with Clem Chambers, a British entrepreneur, journalist and investor, to talk about precious metals, commodities, geopolitics, AI, macro liquidity and stock selection.
Here’s what you’ll hear:
- Why metals are rallying, and why Clem treats big intraday swings as “noise” that can mislead positioning.
- Clem’s current positioning across metals, long gold, stakes in platinum and palladium, and accumulating copper, plus why he’s out of silver for now.
- The U.S.–China competition and AI buildout angle, including energy, data centers, and why copper demand could surge.
- Macro and stock-picking takeaways for 2026, from inflation and liquidity signals to contrarian value ideas like PayPal and Fluor.
Hit play and see for yourself 👇️
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BITE-SIZED COOKIES FOR THE ROAD 🍪
President Trump said his pick to lead the Fed, Kevin Warsh, can power the economy to grow at an astonishing annual rate of 15% (almost impossible). Trump said: “I think he is going to be great, and he’s a really high-quality person.”
Elon Musk has pivoted SpaceX’s top target to the moon instead of Mars. He said the rocket company "shifted focus to building a self-growing city on the Moon," arguing that doing so on Mars would take "20+ years."
It’s a big week for economic data - with both a jobs report (Wednesday) and a CPI report (Friday) to be released. The two big data points will likely move markets and expectations for Fed rate cuts.
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