"Hope of the entire market"! U.S. tech stocks suffer their worst start since 2022, with Nvidia’s performance seen as key to reversing the downturn.

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U.S. tech stocks started 2026 with a slowdown, becoming a key variable restricting the broader market’s rise. Nvidia’s upcoming earnings report is seen by the market as crucial to whether sentiment can be reversed.

Nvidia will release its quarterly earnings after U.S. market close on Wednesday. Amid heated debates over whether AI-related selling has gone too far and when pressured tech stocks will turn around, the semiconductor giant’s performance and guidance may have spillover effects across the entire tech industry chain.

So far, the S&P 500 Information Technology sector has fallen 3.5% this year, marking the worst start since 2022. Internal division is obvious within the sector, software companies have been battered by concerns of AI disruption, while semiconductors and hardware are still rising, reflecting a repricing between “AI beneficiaries” and “AI victims.”

More importantly, tech stocks’ influence on the index cannot be easily replaced. The tech sector accounts for about 33% of the S&P 500, much higher than the second-largest sector—financials—at 12.4%. Even if money rotates into materials, energy, etc., a meaningful rise in the broader market still hinges on tech stabilizing and rebounding.

Software stocks battered, worst start in history

There is clear divergence within the tech sector, with software hit first. The market worries the new generation of AI tools will fundamentally disrupt software companies’ business models, causing the S&P 500 Software & Services Index to plunge 23% since the start of the year—the worst opening in the index’s history.

At the individual stock level, finance software maker Intuit has plunged about 46% this year and will release its earnings on Thursday. Salesforce is down 30% and will announce results on Wednesday alongside Nvidia. Microsoft has dropped nearly 20% year-to-date.

According to S&P Dow Jones data, as of last Friday, Microsoft has become the single largest drag on the S&P 500 this year.

Beyond structural worries in software, Microsoft’s stock has also suffered from market doubts over whether its massive AI infrastructure investments can generate adequate returns. Similar capex concerns have suppressed Amazon, Alphabet, and Meta Platforms, with Amazon down about 10% this year.

Semiconductors and hardware rise against the tide

Not all tech subsectors have failed. Semiconductors and equipment are up about 7% year-to-date, hardware is up more than 4%, a stark contrast to software. As of now, the relative performance gap between semiconductor and software stocks has reached an extreme level.

Behind this divergence is widespread anxiety sparked by a report. The report outlined AI’s disruptive potential and forecast unemployment rising to 10.2% by 2028. This aggravated pessimism about software companies, while driving capital into chip stocks seen as AI beneficiaries.

Last Tuesday, software stocks rebounded slightly, partly because Anthropic announced a new tool co-developed with partner companies, briefly boosting sentiment. Analysts note whether this marks a genuine turning point remains to be seen.

Tech sector’s heavy weighting drags down the market

The tech sector’s dominance in major U.S. indexes is irreplaceable. Tech’s weight in the S&P 500 is 33%, while financials rank second at only 12.4%. Even if other sectors outperform, if tech keeps lagging, the overall market’s upside will remain limited.

In fact, other sectors have benefited from rotation. Since the tech sector peaked last October and fell about 10%, materials and energy have risen over 20%, industrials and consumer staples both up more than 10%.

Thanks to these supporting sectors, the S&P 500 has largely moved sideways during tech’s period of weakness.

Nvidia Earnings: Waiting for “AI narrative” repricing

Against this backdrop, Nvidia’s post-market earnings on Wednesday have become even more important.

Along with Alphabet, Apple, Tesla, and other mega-cap companies, Nvidia has been a core driver of the bull market since October 2022, as investors bet on their extraordinary profit growth and competitive moats.

Now, as the AI narrative faces doubt, whether Nvidia’s quarterly report can revive confidence may largely determine the tech sector—and even the broader market’s—next move.

Nvidia is also the largest by market cap among the Mag7. Horizon Investment Services CEO Chuck Carlson said Nvidia’s earnings are important because “it’s kind of the key fulcrum for the Mag7.”

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