S&P 500 ex-AI Index Matches Standard Benchmark as Tech Slumps

Investors avoiding artificial intelligence stocks have matched returns from the broader market this year. A proprietary index created by Goldman Sachs and S&P, which removes companies classified as AI enablers from the S&P 500, stood at a 12.4% gain through October 22. This performance edged out the standard S&P 500, which was up 12% at the same time. The two measures are now neck and neck following a rally in tech stocks on Monday.

The shift comes as the heavy weight of technology in the market turns into a drag. Tech and AI-related firms constitute approximately 45% of the S&P 500. While this concentration powered the index for years, it has recently hurt performance. The tech sector is down roughly 7% this month, while other sectors have held steady.

Market sentiment has turned against debt and equity from major AI infrastructure players. Shares of Meta Platforms fell nearly 7% on Thursday after the company announced plans for heavy capital expenditure and additional share issuance. Suppliers of power and equipment, including GE Vernova, Bloom Energy, Vistra, and Quanta Services, also suffered steep declines during the recent selloff.

Capital is rotating into defensive areas of the market. State Street ETFs focused on consumer staples, healthcare, and utilities are up between 7% and 10% this month. The energy sector is also ahead by 10%, a gain partly attributed to the war in Iran. Ari Wald, an Oppenheimer technical analyst, noted in an October 24 report that the AI pendulum has swung back toward non-AI exposure over the last two weeks.

Oppenheimer recently upgraded commercial services and insurance to overweight ratings. The firm now 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 have risen 8% this month, aided by its diversified portfolio which includes Geico, Burlington Northern Santa Fe, Apple, Coca-Cola, Alphabet, and Bank of America.

Trivector Research points to non-tech companies that compound growth as potential winners. Eli Lilly, whose stock is up 22% on the strength of its weight-loss drugs, is one example. The company plans to file for FDA approval of a next-generation obesity drug early in 2027. Viking Holdings, a cruise operator, has also shown durability. The stock is up 15% this year, and the company reported that 40% of its river capacity and 60% of its ocean capacity is already booked for 2027. Barclays recently upgraded Viking to overweight with a price target of $102, while the average Wall Street target stands at $109.