Tech stock analysis: Santoli says AI's youthful phase is over

Key takeaways

• CNBC’s Mike Santoli says the period when AI winners were easy to spot and losers were scarce has ended, even if the technology keeps producing profits.
• Semiconductor shares were already about 20% below their June highs before a 4% drop on Monday.
• The tech sector of the S&P 500 has seen its forward price/earnings multiple fall from 29 to 21 over the past year.
• Santoli sees a rate-hike backdrop that echoes 1999 but says he doubts this cycle will follow that one closely.

The news

In his Market Memo, Santoli describes the AI theme as having moved out of its early phase. His argument rests on a change in what investors are talking about. A year ago the common worry was that an AI bubble was forming. Since June, a sharp sell-off in high-momentum stocks, led by AI hardware and related industrials, has reduced that concern and cooled speculative positioning.

The chip group is the clearest sign of strain in this tech stock analysis. Semiconductor shares were about 20% off June highs before Monday’s 4% slide. Santoli also points to the forward earnings multiple of the S&P 500 tech sector, which he says has dropped from 29 to 21 in a year because investors are unwilling to extrapolate the recent profit surge without a clear route to free cash flow.

Measure	Reading cited by Santoli
Semiconductors vs. June highs	About 20% lower
Semiconductor move on Monday	Down 4%
S&P 500 tech forward P/E, a year ago	29
S&P 500 tech forward P/E, now	21
S&P 500 Monday move	Down 0.5%

Why the narrative matters

Santoli writes that public opinion has turned against AI, citing data centers that poll below Congress in approval, and that projections of order backlogs reaching beyond a few quarters have become suspect. He adds that talk of restraining the speed of model development makes it harder to argue that 2027 earnings estimates, which depend heavily on chips, are too low.

He also sees a quieter positive. The large platform companies that drive most AI spending, Microsoft, Alphabet and Meta, traded firmly on Monday, which he reads as relief that a slower pace gives them room to pause before raising capital and spending further. Investors have shown a clear appetite for companies with ample free cash flow, he notes, and a VictoryShares free cash flow ETF full of software, healthcare and energy names has left the Mag 7-dominated S&P 500 behind in recent months.

Sector performance beneath a flat index

The index tells a different story from the sector moves. The S&P 500 has gone nowhere since June 1 but has not fallen more than 3% from a record high in that stretch. On Monday about 10% of its members fell 4% or more while about 10% rose at least 4%, leaving the index down 0.5%. Santoli calls this a tape that rescues itself through fast rotation, and he links it to households being fully invested. Bank of America data cited in the piece show equity exposure among its wealthy clients at a 25-year high, with bonds and cash near historic lows.

The 1999 comparison

Santoli sets out the parallels that observers draw. He says the Federal Reserve is poised to begin raising rates this week as 10-year Treasury yields top 5%, after cutting three times late last year. In June 1999 the Fed started raising rates when the 10-year yield hit 6%, after three cuts the year before.

He does not argue that history will repeat. Yields in 1999 were down from 7% to 8% five years earlier, while today’s have risen from about 1% over the past five years. Corporate tax rates were 35% then against 21% now, and retail brokers charged $15 a trade. He cites a Bespoke Investment Group chart that overlays the Nasdaq Composite since ChatGPT’s release on the period after Netscape’s launch in 1994, and calls that overlay too forgiving, since tech was already dominant and enthusiasm for AI arrived at once. He also notes that Evercore ISI’s Julian Emanuel likens the June 2026 SpaceX IPO to the Netscape IPO.

What to watch

The Fed’s decision this week, the next move in semiconductor shares and whether tactical sentiment, which Macro Risk Advisors describes as moderating but not yet at contrarian extremes, tips further. This article reports commentary and market data and is not investment advice.