The technology sector is going through a soft patch at the start of the year. On a global scale, it is down by around 4% (in EUR), driven by a sharp correction in the software segment (-20%). Despite this setback, the MSCI index of major global equities has managed to maintain an upward trend, with an average gain of about 2%. Should we see this as a paradox? Not really, but the situation does need to be put into perspective, as Tech, which accounts for nearly 26% of global market capitalization, remains a key engine of stock markets: when it coughs, markets often catch a cold.
The current weakness is most visible in the United States, where the sector accounts for more than 40% of the S&P 500. U.S. Tech is down more than 4%, dragging the S&P 500, which is barely moving (+0.6%), while in Europe, technology stocks are posting a strong gain of 9%. This performance is largely attributable to ASML, which alone represents nearly half of the European IT sector and whose share price has jumped by almost 30%.
"}},{"componentType":"sectionTitle","title":"Tech is not in bad shape"},{"componentType":"paragraph","richBody":{"value":"How can we explain this slump in U.S. Tech? To be clear, it is neither a deterioration in fundamentals nor a warning sign of a new financial bubble. From a microeconomic perspective, the results published by companies in the sector remain strong - well above those reported by other sectors. Profit forecasts also remain remarkably robust. Their valuationsare still ‘expensive’, since U.S. Tech is trading at nearly 36 times its expected earnings, but this ‘rewards’ a market consensus that anticipates nearly 40% earnings growth in 2026!
"}},{"componentType":"sectionTitle","title":"Software challenged by AI agents"},{"componentType":"paragraph","richBody":{"value":"The current tension is largely concentrated on one specific segment of the technology sphere: software. This segment, which accounts for nearly a quarter of global Tech and almost a third of U.S. IT, is being shaken by fears that AI agents could render certain software obsolete. A fear that should, however, be put into perspective, as the recent history shows that early fears surrounding AI often do not materialize.
When ChatGPT was launched, many predicted the end of the traditional search engine. Yet Google has since integrated its own AI model, Gemini, and continues to dominate its market. The same happened with DeepSeek: some feared a major impact on NVIDIA, but nothing of the sort occurred!
With every major innovation, the market tends to overreact before eventually regaining composure. This does not mean that weaker players will not disappear, but the sector’s leaders have the capacity - and the financial resources - to adapt. Software giants are investing hundreds of billions of dollars to avoid obsolescence. While not all companies will survive, the sector will continue to evolve and transform, as it always has.
"}},{"componentType":"sectionTitle","title":"Overcoming ‘physical’ constraints"},{"componentType":"paragraph","richBody":{"value":"In the short term, one of the major challenges for software producers will be to overcome several ‘physical’ bottlenecks. RAM production, for instance, is struggling to keep up with demand, with prices increasing fivefold in just six months. Another major obstacle is that data centers are running at full capacity, with utilisation rates exceeding 80%. The problem is that the construction of new sites is being held back by the inability of many power grids to absorb the exponentially growing electricity demand. To grasp the full scale of the phenomenon, consider that U.S. data centers now consume as much electricity as Thailand!
"}},{"componentType":"sectionTitle","title":"How does this affect the investment strategy?"},{"componentType":"paragraph","richBody":{"value":"Tech remains a key pillar in ING’s asset allocation, given its significant weight in stock market indices and its profit growth, which far exceeds the market average. There is therefore no question of ‘throwing the baby out with the bathwater’: in the face of rising volatility, the best defence remains diversification.
ING’s fund managers aim to broaden IT exposure toward cheaper regions which, like emerging markets, which are also benefiting from the AI wave. The same recommendation applies at the sector level, since IT is not the only sector poised to benefit from the rise of AI. Healthcare, for instance, is a major user of algorithms for drug discovery, while energy and infrastructure providers play a crucial role in supporting the expansion of data centers.
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