The ‘dumb money’ steps in as traders lose $1 trillion on the realization that AI will eat tech companies first

S&P 500 futures were flat-to-up this morning before the markets opened in New York, a sign that traders may be done with the carnage they have wreaked in the stock markets over the last few days. The index fell 0.51% yesterday, closing at 6,882, after spending much of the previous month flirting with the 7,000 level. Markets were flat or down globally this morning, with the worst performer being South Korea’s KOSPI, which lost 3.86%. The damage came from the tech and software sector, as investors began to realize that the promise of AI won’t always be sunshine and roses. Until recently, the markets had assumed that companies would be buoyed by the massive amount of capex going into AI, and that AI would generate new efficiencies and higher productivity that would ultimately result in higher revenues and earnings per share. Over the last few days, however, traders have reacted to the notion that AI also has the power to destroy the revenues of companies reliant on traditional software that can be replaced by AI.

As much as $1 trillion was wiped off the market cap of software companies yesterday, according to Bloomberg. Alphabet closed down nearly 2% yesterday and lost a further 2.53% overnight after revealing on its earnings call that it planned to double AI capex.

That’s a problem because until very recently the performance of the S&P 500 was governed by the heavy weight of tech stocks, like Alphabet, within it. “By the end of 2025, the 10 largest companies accounted for nearly 41 percent of the S&P 500’s total weight,” according to RBC Wealth Management.

But the chaos is mostly a tech-only phenomenon, the data says. The equal-weight S&P 500—a notional index that values each of the 500 companies equally rather than by total market cap—is actually at a record high this morning because the non-tech companies inside it are doing rather well.

“Tech stocks are being squeezed sharply, but a lot of broader indices are still holding up for the most part,” Jim Reid and his team at Deutsche Bank told clients this morning. There were “363 advancers in the S&P 500 [yesterday], which was actually the most in two weeks.”

People are buying stocks, just not tech stocks.

So who is behind this selective buying? Retail traders who love to buy the dip, according to Axios. Retail buyers—ordinary folks trading their own accounts—used to be referred to as “the dumb money” among the institutional investors of Wall Street because they historically waited too long to jump into bull markets and sold too late into bear markets, the opposite of what you’d want to do.

Things have changed, however. Retail buyers form a much larger part of the market than they used to—via platforms like Robinhood—and have consistently jumped on the dips, especially since “Liberation Day” last year when President Trump’s tariff plan lopped something like 15% off the S&P before rebounding by 38% by the end of the year, trough to peak.

So, are this morning’s S&P futures buyers right? Is the selloff over? “It is very hard to say that this U.S. tech correction has legs, but a fully invested buy-side does look vulnerable to any bad news.” ING’s Chris Turner told clients this morning.

Here’s a snapshot of the markets ahead of the opening bell in New York this morning:

S&P 500 futures were up 0.16% this morning. The last session closed down 0.51%.
STOXX Europe 600 was flat in early trading.
The U.K.’s FTSE 100 was down 0.14% in early trading.
Japan’s Nikkei 225 was down 0.88%.
China’s CSI 300 was down 0.6%.
The South Korea KOSPI was down 3.86%.
India’s NIFTY 50 was down 0.57%.
Bitcoin declined to $71.2K.