Market Frothiness and the Tech Valuation Reset

Key takeaways

• Tech valuations are undergoing a reset as rising yields unwind crowded trades
• Rooney Vera says market sentiment is shifting from AI hype to demand for real execution and earnings
• Defensive sectors like healthcare are gaining attention as second-order AI plays

Speaking on Bloomberg Technology, StoneX’s Chief Market Strategist, Kathryn Rooney Vera, shared insights on the ongoing recalibration in tech markets and how investors are responding to rising interest rates, trade uncertainty, and AI-driven shifts in capital allocation.

Rooney Vera noted that the tech sector’s sensitivity to high Treasury yields has been a major factor in recent market weakness. As long-duration growth stocks become less attractive in a higher-rate environment, investors are pulling back from crowded trades and reconsidering valuations.

“That’s probably one of the biggest drivers of tech’s move to the downside,” Rooney Vera said.

With tech comprising nearly 30% of the S&P 500’s market cap, she noted that it remains especially vulnerable to broad risk-off moves, particularly those triggered by rising trade tensions or other geopolitical uncertainty. These dynamics are weighing on sentiment and contributing to a rotation out of mega-cap tech and into more defensive or fundamentally attractive areas of the market. In her view, the market is entering a more mature phase of AI investment, where investors are demanding results over just hype.

She also noted that while some investors are beginning to look for dip-buying opportunities. Even a 10% correction, she explained, doesn’t fully unwind the frothiness that’s built up in AI-linked stocks over the past several years.

Rooney Vera also addressed the shifting market psychology, noting that the "vibe-driven" trading environment of recent years, where sentiment often outpaced fundamentals, is giving way to more tangible concerns such as around trade policy. She highlighted tech’s exposure to renewed tariff threats, drawing on past precedent from the 2018–2019 tariff cycle under the Trump administration.

While those tariffs had a measurable, yet temporary, impact on inflation, she noted the current environment is different: supply chains have already adjusted, meaning new tariffs are more likely to compress corporate margins and earnings rather than drive up prices. As a result, she warned that the reemergence of tariff fears could further dampen market sentiment and weigh on tech valuations.

When asked how AI adoption is playing out beyond chipmakers and hyperscalers, Rooney Vera noted that the theme has become more of a buzzword than a bottom-line driver so far. She emphasized that investors are now looking for real deployment, execution, and earnings.

As the AI story matures, Rooney Vera sees greater opportunity in second-order beneficiaries. Sectors indirectly boosted by large-scale AI investment are key to watch. Rooney Vera pointed to data center operators, cloud infrastructure, real estate, medical, and financials as key structural plays, and reaffirmed healthcare as the most prominent sector of 2025.

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Watch the original video here.

Written by: Anne Lamedica
Expert: Kathryn Rooney Vera, Chief Market Strategist

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