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On Tuesday, technology firms propelled U.S. stocks upward, as investors eased their concerns over the software industry after a period of intense selling driven by fears that artificial intelligence might drastically impact the sector.

The S&P 500 climbed 0.8 percent by the close of the day, with the S&P tech sub-index seeing a 1.2 percent increase. The S&P software index rose by 1.8 percent, though it still lags by nearly 24 percent for the year.

In recent weeks, software stocks have taken a beating as investors have steered clear of industries perceived to be at risk from AI disruption, preferring sectors with more tangible assets. Consequently, stocks in utilities, energy, and materials have gained favor amidst the AI-driven uncertainty on Wall Street.

Before Tuesday’s slight rebound, the S&P 500 software sub-index had fallen to its lowest since the period following President Donald Trump’s “liberation day.” Post the tariff announcement last April, the index shed $1.2 trillion in market value within less than a month.

The software industry has been at the forefront of concerns that emerging AI technologies might revolutionize entire sectors. These apprehensions have similarly shaken wealth management firms and insurance companies.

But the S&P 500 electric utilities sub-index is up more than 9 per cent this year, while energy stocks have gained about 20 per cent, as sectors with substantial physical assets find themselves back in vogue after years of underperformance relative to asset-light tech business.

“All these capital-light businesses that could scale historically are also the ones that could be easily disrupted,” said Guillaume Jaisson, European strategist at Goldman Sachs.

On the other hand, “capital-heavy businesses are difficult to replicate, it takes time”, Jaisson said.

“They are more insulated from the risk around AI,” he added, labelling the buoyant sectors as “Halo” stocks: heavy asset, low obsolescence. 

The tech-heavy Nasdaq index rose about 1 per cent on Tuesday as stocks rebounded from Monday’s losses.

US software companies Intuit, AppLovin, Gartner and Workday have all dropped nearly 40 per cent this year. Power company Generac Holdings and glassmaker Corning Inc are among the S&P’s biggest gainers this year. Oil groups Exxon and Chevron are up about 20 per cent in 2026.

Alex Temple, a credit portfolio manager at Allspring Global Investments, said the flash sell-offs were a symptom of investors crowding into sectors they did not fully understand and then overreacting to predictions of AI disruption — such as the blog post from Citrini Research that sparked Monday’s software meltdown.

“It’s late-cycle behaviour, a lot of people will be invested in things that they don’t know a lot about,” Temple said, adding that the software selling had been driven by “Fobo”, or the “fear of becoming obsolete” due to AI advances.

The market reaction to the Citrini piece, which was “littered with really bad analysis” and a “misreading of macroeconomics”, spoke to “market structure and who is driving prices these days”, said George Pearkes, a macro strategist at Bespoke Investment Group.

“It’s hard to draw super hard conclusions here except that the buyers of these stocks [have] a very low-risk budget and are trigger happy,” Pearkes said.

He added that the market was increasingly driven by “pod shops”, or multi-strategy hedge funds that have many teams operating almost autonomously. Those funds had little tolerance for market drawdowns, said Pearkes.

“There are rotations going on in the stock market, but I’m not sure if they’re durable,” said Pearkes.