Time for a Sector Rotation Away from Tech? ETFs in Focus

U.S. stocks slipped on Aug. 19, 2025 following a sharp decline in tech shares. The tech-heavy Nasdaq-100-based exchange-traded fund Invesco QQQ Trust QQQ lost 1.4% on Aug. 19, 2025. The pressure came after weakness in stocks like Palantir PLTR and NVIDIA NVDA weighed on the broader market on Tuesday. PLTR shares slumped 9.4% and NVIDIA shares retreated about 3% on Aug. 19, 2025.

Palantir shares surged more than 150% from their April low heading into its second-quarter earnings, when the company reported quarterly revenue above $1 billion for the first time. However, data from Barchart showed that Tuesday’s decline marked the stock’s longest losing streak since March, as quoted on Yahoo Finance.

Shift Away From Big Tech?

Investor enthusiasm for Big Tech appears to be fading, with other sectors beginning to show renewed strength. The broader market rally is starting to show signs of rotation beyond Big Tech, the Yahoo Finance article indicated.

Home Depot HD added some optimism after reporting earnings that showed a boost in U.S. sales, pushing its stock price higher. The HD stock advanced 3.2% on Aug. 19, 2025.

Is AI Market Forming a Bubble?

OpenAI CEO Sam Altman has recently suggested that the artificial intelligence (AI) industry is currently experiencing a bubble fear, as quoted on CNBC. He indicated that while AI represents one of the most significant technological shifts in decades, the AI euphoria has led to overinflated expectations from investors.

Altman sees similarity between the current environment to the dot-com boom of the late 1990s, which was hit hard when many Internet companies failed to materialize the euphoria into profits.

The concerns intensified earlier this year when the “Magnificent Seven” had fallen from grace due to the rise of cheaper-cost AI companies (e.g., DeepSeek) and individual Big Tech companies’ ability to handle broader macro uncertainty.

The AI development at Big Tech has raised questions among some investors about whether current spending levels in AI are sustainable. Despite ChatGPT-Fame OpenAI’s huge success and its annual recurring revenue projection to top $20 billion this year, the company remains unprofitable.

Nasdaq-100 ETF in Focus

Most AI biggies have exposure to the Nasdaq-100-based ETF Invesco QQQ Trust, Series 1 (QQQ). The P/E ratio of QQQ stands at 59.27X. The 10-year range of the P/E ratio is 19.7X to 59.46X. The median P/E of the past 10 years is 25.8X. This shows the overvaluation concerns associated with QQQ.

However, the price-to-book (P/B) ratio of QQQ is currently 3.6X, which is the lowest value considering the past 10-year range. The 10-year median P/B is 6.03X, per Gurufocus.com.

Hence, the sudden crash of AI euphoria (if there is any) may not hurt QQQ that hard. Still, investors should be mindful of relentless AI investing going forward. Their portfolio may need diversification at the current juncture.

Rely on Safe Sector Consumer Staples

This is a safe sector as it is non-cyclical in nature. The consumer staples sector tends to do well even amid economic growth slowdown and high inflation. Since consumers have to buy staples products even if they cut back on their discretionary spending, big manufacturers of food and beverages normally have the power to pass on the increase in costs to customers. This puts focus on iShares U.S. Consumer Staples ETF (IYK) (read: Invest Like Warren Buffett With These ETFs).

Value ETFs At a One-Month High

Value stocks normally offer investors stability due to lower valuations and steady dividends. They can outperform during periods of market rotation away from high-growth sectors. In a volatile market, dividend ETFs normally come to rescue.

The hunt for dividends in the equity market is always on, irrespective of how it is behaving. Probably this is why, S&P 500 Pure Value Invesco ETF RPV and Morningstar Dividend Leaders ETF FDL have hit a one-month high lately.

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This article originally published on Zacks Investment Research (zacks.com).

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