To The Moon

Technology stocks are facing two sources of uncertainty at the same time: US midterm elections and growing concerns about the sustainability of AI infrastructure spending.

On Monday, the Nasdaq 100 ETF (QQQ) fell 1.37%, while the S&P 500 declined 0.52%. Technology stocks remained under pressure as investors assessed the potential impact of election outcomes on corporate taxes, technology regulation, AI data-centre approvals and government spending.

The timing is particularly interesting because the market is already questioning whether enormous AI investments will generate sufficient returns.

For investors, the challenge is deciding whether the current weakness represents a temporary period of uncertainty or an early warning that risk appetite is changing.

Here are five things I would be watching.

1. Election Uncertainty Could Add to Market Volatility

The midterm elections could influence expectations around corporate taxation, government spending, technology regulation and energy policy.

For technology companies, AI infrastructure approvals and access to electricity are particularly relevant.

Data centres require substantial investment, land, power and regulatory approvals. Any changes in the policy environment could affect project timelines and operating costs.

However, the actual impact will depend on the policies pursued, legislative negotiations and whether Congress is divided.

I would avoid making investment decisions based solely on election headlines. The market’s reaction to actual policy developments will matter more than speculation.

2. AI Spending Is Becoming a Bigger Market Concern

One of the biggest questions facing technology stocks is whether the current AI investment cycle can deliver attractive returns.

Microsoft, Amazon, Alphabet and Meta are committing enormous amounts of capital to AI infrastructure.

This spending benefits semiconductor manufacturers, networking companies and data-centre operators.

However, investors are increasingly asking when these investments will translate into sustainable revenue and free cash flow.

If spending continues accelerating without corresponding improvements in profitability, valuations could come under further pressure.

This concern may ultimately have a greater impact on technology stocks than short-term political uncertainty.

3. Earnings Breadth Will Tell Us Whether the Sell-Off Is Widening

I think QQQ’s earnings breadth is worth monitoring.

If only a handful of mega-cap technology companies continue delivering strong results, the broader technology sector could struggle to maintain its momentum.

On the other hand, if earnings growth starts spreading across semiconductor companies, software providers and other technology businesses, it could indicate healthier market participation.

I would pay particular attention to revenue growth, forward guidance and free cash flow rather than focusing exclusively on earnings beats.

A broader earnings recovery would provide more convincing evidence of improving market conditions.

4. Defensive Assets Could Signal Changing Risk Appetite

Another indicator worth watching is whether investors are rotating towards defensive sectors and short-term US Treasury bills.

When uncertainty increases, some investors prefer holding cash or short-duration government securities rather than maintaining full exposure to volatile growth stocks.

However, defensive positioning does not necessarily mean investors are abandoning equities.

It can simply reflect a preference for liquidity while waiting for greater clarity.

I would watch Treasury bill demand, bond yields, market volatility and defensive-sector performance together rather than treating any single indicator as a definitive signal.

5. Hedging Does Not Have to Mean Selling Everything

For long-term investors, reducing risk does not necessarily require exiting the market.

There are several ways to manage exposure:

• Reduce concentration: Avoid having too much portfolio exposure in a small number of high-valuation technology stocks.

• Maintain liquidity: Keeping some cash available provides flexibility if attractive opportunities emerge.

• Diversify: Consider exposure beyond technology, including broader-market ETFs and defensive sectors.

• Avoid excessive leverage: Volatile markets can magnify losses when positions are heavily leveraged.

• Use staged buying: Rather than committing all available capital at once, spreading purchases over time can reduce the risk of poor entry timing.

The objective is not to predict every market move. It is to ensure that short-term volatility does not force long-term investors into unwanted decisions.

My Investment Takeaway

I think investors should distinguish between political uncertainty and fundamental deterioration.

Election-related volatility can be temporary, but weakening earnings growth, declining free cash flow and excessive capital expenditure can have more lasting consequences.

For technology stocks, I would focus less on predicting which political party gains control and more on whether companies can continue converting AI investment into profitable growth.

I am particularly interested in whether the next phase of the AI cycle rewards companies with strong cash generation rather than simply those spending the most on infrastructure.

QQQ, semiconductor stocks and software companies may not respond equally to the same market conditions.

For me, maintaining flexibility, managing concentration and keeping some liquidity are sensible considerations when valuations and expectations remain elevated.

The biggest opportunity may come when market uncertainty creates a meaningful difference between a company’s underlying business performance and its share price.

For discussion purposes only. Not financial advice.