The road ahead for technology stocks will probably continue to be bumpy for now, after a tough start to the year.
2026 hasn’t been tech’s year so far, as the industry faces a volatile geopolitical backdrop and industry concerns on the home front.
The Nasdaq Composite dropped 7.1% in the first three months of the year, its largest quarterly percentage decline in a year, according to Dow Jones Market data. All of the Magnificent 7 stocks also fell in the first quarter. Microsoft had the worst start to the year out of all of them, dropping 23% for its worst quarterly performance since 2008. Meta Platform’s 13% drop marked its worst quarter since 2022.
The best-performing Mag 7 stock in the first quarter was Nvidia, which still fell 6.5% in the first three months of 2026.
The war in Iran has been a major headwind for the entire stock market, and tech has been far from immune. Investors shifted away from high-growth stocks as surging oil prices and escalating tensions dented investor sentiment.
Wall Street is paying attention to the war’s multiple spillover effects on tech. Sticky inflation due to rising energy costs could mean interest rates stay elevated—never a positive for growth stocks.
Tom Essaye, founder and president of Sevens Report, told Barron’s that the war’s impact extends beyond energy prices.
“People are concerned that there may be less investment from the Middle East into a lot of these AI companies due to a multitude of factors,” Essaye said, referring specifically to the United Arab Emirates and Saudi Arabia.
The stock market seems to think the Iran war is coming to an end. The Dow Jones Industrial Average was up 411 points, or 0.9% on Wednesday. But even if the conflict comes to a close, there’s other obstacles tech has to overcome.
The sector has also struggled as Wall Street reevaluates artificial-intelligence spending. Companies like Meta, Alphabet, Microsoft, and Amazon.com are spending hundreds of billions of dollars in building out the infrastructure needed to power AI. It’s a massive commitment to make before the full capabilities of AI have been recognized. While AI will likely transform the world, these stocks are being devalued as free cash flow takes a hit and risks rise.
“The market needs to hear more aggressive use cases as opposed to just the people who are providing the technology telling us how great it is,” Essaye said.
Meaningful adoption is going to take time. Until then, investors are focused on near-term signals that AI demand is strong enough to support the expensive data center buildouts. Companies that sell the hardware to power AI, like chip darling Nvidia or memory makerMicron, have made it clear that demand is outpacing supply. Investors want to see that demand reflected in hyperscalers’ cloud revenue growth.
Tech earnings are expected to come at the end of the month. It’s an opportunity for the Magnificent 7 to get investor sentiment back on track. But the stocks could come under increased pressure if tech giants commit to even more spending on AI.
“I think that the good times to a point are over,” Essaye said. “That doesn’t mean that I think tech is going to lag the market for the next couple of years. But I do think that the era of the massive tech outperformance has probably ended for a little while, until we get those proof elements.”
However, analysts do see a rebound in tech stocks’ future. Analysts surveyed by FactSet have average price targets for all Mag 7 stocks that surpass their latest closing prices. For example, Apple’s average price target is $297.97, which implies a 17% increase from its last closing price of $255.63. Tesla has an average price target of $410.63, implying a 7% climb from its last closing price of $381.26.
Tech investors will likely be in more turbulent waters in the near term. Riding the volatile wave may just pay off.
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