Are Tech Stocks Losing Their Market Edge?

Wall Street veteran warns tech stocks are crowded and at risk of losing leadership

U.S. stock futures point to a strong start to the year, with artificial-intelligence names once again driving early gains.

But Jim Paulsen argues that technology stocks — what he calls “new era investments” — could lag the broader market in 2026.

His concern isn’t just the familiar Big Tech story. While investors remain heavily overweight technology and valuations are stretched, those factors alone have led to only modest pullbacks in exposure so far.

Writing in his Paulsen Perspectives blog, Paulsen highlights several lesser-known warning signals that could undermine tech’s dominance.

One key risk is that tech stocks may stop outperforming growth in new era spending. Using GDP data, Paulsen tracks investment in information-processing equipment and intellectual property. Historically, tech stock prices have risen faster than this type of economic spending.

But three times over the past decade that relationship stalled or reversed — and each instance was followed by a period of significant tech underperformance.

Since late September, S&P 500 technology stocks have only kept pace with new era economic spending. “If tech stocks are no longer leading spending growth,” Paulsen asks, “does this point to another stretch of underperformance?”

Corporate liquidity is another red flag. Paulsen shows that tech bull markets have been fueled by rising corporate cash levels, measured against nominal GDP. The powerful tech rallies of the 1990s and the post-2014 period both coincided with expanding cash balances.

That tailwind may now be fading. The corporate cash-to-GDP ratio peaked at the end of 2024 and has since turned lower. Paulsen expects it to decline further in 2026 as short-term interest rates fall. “When excess cash dries up,” he warns, “the technology boom tends to pause.”

Paulsen also sees a connection between tech performance and research-and-development spending. When R&D slipped relative to real GDP in 2022, technology stocks began trailing the broader S&P 500. While that link has weakened since late 2022, he questions whether a renewed slowdown in R&D could again pressure tech shares.

Finally, Paulsen cautions that any sustained stumble in tech could trigger a psychological shift among investors, turning yesterday’s winners into tomorrow’s “losers.” Given how crowded the trade has become, such a shift could be painful — and may open the door for value stocks, small and mid-caps, and international markets to outperform.

Paulsen stresses he is not calling for a crash. Rather, he believes a growing set of warning signs suggests technology stocks may soon surrender their long-held leadership role.