Tech sector crowded and vulnerable to a “loser” label in 2026, warns Wall Street veteran
Early futures trading points to a positive start for U.S. stocks in the new year, with artificial-intelligence names once again leading the advance.
But Jim Paulsen believes technology shares — which he groups under what he calls “new era investments” — may struggle to keep pace with the broader market in 2026.
His caution goes beyond the usual concerns surrounding Big Tech. While investors are heavily overweight the sector and valuations remain elevated on a price-to-earnings basis, Paulsen notes these issues alone have triggered only limited de-risking so far.
Instead, in his Paulsen Perspectives blog, the veteran market strategist highlights several “less-followed warning signs” that could weigh on technology stocks.
One risk is that tech stocks may stop tracking growth in new era spending. Paulsen measures this spending using GDP data, focusing on investment in information-processing equipment and intellectual property. Historically, tech stock prices have tended to rise faster than this form of economic spending. However, over the past decade there have been three periods when that relationship stalled or reversed — each followed by notable tech underperformance.
Since late September, S&P 500 technology stocks have once again merely matched the pace of new era economic spending. “If tech stocks are no longer outpacing new era spending,” Paulsen asks, “does this signal another stretch of relative underperformance?”
Corporate liquidity is another concern. Paulsen shows that tech stocks have been closely tied to excess corporate cash, as measured by the ratio of total corporate cash to nominal GDP. The two major technology bull markets — the 1990s and the post-2014 surge — coincided with rising corporate cash balances.
That trend, however, appears to be turning. Since late 2024, the corporate cash-to-GDP ratio has begun to roll over. Paulsen expects it to decline further in 2026 as short-term interest rates fall. “Once corporate cash dries up,” he warns, “the stock market’s technology miracle may hit a pause.”
He also points to a link between tech rallies and booms in research and development spending. When R&D spending fell relative to real GDP in 2022, technology stocks began lagging the broader S&P 500. Although that relationship has weakened since late 2022, Paulsen questions whether a renewed slowdown in R&D could once again pressure new era stocks.
Finally, Paulsen raises the risk of a shift in investor psychology. If technology shares stumble meaningfully, former market leaders could quickly be rebranded as laggards — a dangerous outcome for a sector that remains heavily owned. In that scenario, areas such as value stocks, small- and mid-caps, and international markets could take the lead.
Paulsen emphasizes that he is not predicting a crash. Rather, he suggests that a growing list of warning signs may indicate technology stocks are nearing the end of their long-standing leadership run.
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