By Angela Palumbo
It wasn't long ago that counting on a mega cap tech stock to rise was a pretty safe bet, but that certainty has been turned on its head this year.
The tech-heavy Nasdaq Composite index has dropped 5.9% in 2026, partly from the uncertainty due to the Iran war.
A tech selloff isn't unusual when the market abruptly shifts into risk off mode, said John Belton, portfolio manager at Gabelli Funds. Investors will start looking for high beta and high valuation names to drop from their portfolios.
"Tech just kind of fits the shoot first, ask questions later profile of a stock that's going to be sold in this environment," Belton said.
Tech stocks were already under pressure before the Iran war started, however, because of the massive spending companies are making on AI. Amazon.com, Meta Platforms, and Alphabet have committed to spending a combined $650 billion in 2026 as they build data centers to house the hardware needed to power artificial intelligence.
Steve Sosnick, chief strategist at Interactive Brokers, told Barron's tech stocks were once viewed as solid investments because they were "asset light, revenue heavy, cash flow generating machines." The spending commitments have changed that narrative.
Since the market volatility may not be ending anytime soon, tech investors might want to take a moment to re-evaluate their risk appetite. There isn't a clear timeline to the end of the war in Iran. Sticky inflation could push the Fed to take a more hawkish approach, and higher interest rates aren't good for tech stocks. Spending also isn't expected to slow down, and Wall Street is still waiting to see tangible returns on those investments.
"If this kind of pull back really made you nervous, you're probably carrying too much risk," Sosnick said.
He added that this is an opportunity to look toward low beta, high dividend stocks. He specifically recommends looking for companies that can fund those dividends out of free cash flow.
Meanwhile, Belton points out that valuations for some of the biggest tech names have come down. That could be a good place for investors to look for opportunities. For example, four of the Magnificent 7 stocks -- Microsoft, Nvidia, Amazon, and Meta -- are trading below their five-year forward price to earnings averages.
"It's going to be hard to call very short-term moves in stock price, especially when there's a conflict like this, but in the fullness of time, the stock will catch up to the earnings," Belton said. "I think if you just keep that big picture in mind, try not to overreact to the near term if you have a long-term outlook."
Jonathan Cofsky, portfolio manager at Janus Henderson Investors, offers another option if investors don't want to buy stocks that might have lower-than-usual valuations but are spending heavy amounts of free cash flow.
"I think why people have been gravitating towards semi cap and memory and some of these 'picks and shovels' is, they're the beneficiaries of all that capex," he said. "So while the hyperscalars' cash flow is going to zero, it's a bonanza if you look at memory and optical and other names like that."
Tech volatility might just be getting started. Investors can take action now as they get ready for a potentially bumpy road ahead.
Write to Angela Palumbo at angela.palumbo@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 04, 2026 02:00 ET (06:00 GMT)
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