Technology stocks dragged US equity benchmarks lower on Wednesday, with sharp declines in several of the sector’s biggest names prompting the Nasdaq Composite to post its steepest daily drop in nearly three weeks.
The move comes as major averages hover near record highs, suggesting some investors are taking profits from this year’s biggest winners while also seeking protection against further downside.
Tech leaders drive the decline
Shares of Nvidia, Meta Platforms, and Amazon were among the notable laggards, pulling the broader market lower.
On Tuesday, the S&P 500 ended the session in the red, while the Nasdaq Composite fell 1.5%. Nasdaq fell 1.8% on Wednesday, making its worst performance since August 1.
Even after the retreat, Nvidia and Meta remain significantly higher for the year, up 25% and 22%, respectively.
The Technology Select Sector SPDR fund (XLK), which tracks large-cap tech stocks, declined 1.8% on Tuesday and has a 2.2% gain on Wednesday, but is still showing a 10.5% gain for 2025 to date.
The pullback underscores how quickly momentum in the high-growth sector can shift, especially after a year of strong advances.
For many investors, the current market action may reflect a desire to lock in profits while reassessing exposure to a sector that has driven much of the broader market’s gains.
Rising demand for downside protection
Beyond the immediate declines, a more concerning signal for some market watchers is the uptick in demand for hedging.
Jeff Jacobson, head of derivative strategy at 22V Research, pointed to a significant move in the options market ahead of the sell-off.
The put skew — a measure of how much more expensive put options are compared with call options — on the Invesco QQQ Trust, which tracks the Nasdaq-100 index, has climbed to its highest level in three years.
Elevated put skew typically reflects increased demand for downside protection, suggesting investors are positioning for the possibility of further weakness in technology shares.
Jacobson noted that if the pullback extends beyond a short-term dip, the 200-day moving average could serve as an important technical support level for the QQQ.
The fund closed Tuesday at $569.28, while its 200-day average sits at $515.93 — a decline of about 9.4% from current levels.
UBS stays constructive on AI long term
Despite near-term caution, UBS remains broadly optimistic on technology, particularly the artificial intelligence (AI) sector.
In a note to clients, strategists at the bank recommended a balanced approach to exposure, citing strong earnings growth and the absence of signs of investor euphoria as reasons for their constructive long-term stance.
UBS emphasised that the AI value chain — spanning infrastructure, semiconductors, and applications — continues to present opportunities.
The firm also suggested investors consider laggards within the sector that may offer a more attractive risk-reward profile.
For those concerned about heightened volatility, UBS recommended structured investment strategies such as capital preservation and put-writing.
These approaches, they argued, allow investors to maintain exposure to the sector while taking advantage of near-term market fluctuations.
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