The selloff in the tech sector that has heightened investor anxiety over the past week graduated to a new phase on Wednesday: The pullback is over, and it's now officially a correction.
If recent history is any guide, that would seem to dash hopes for a quick recovery. But there's also reason for investors not to worry about a lower-for-longer scenario, given that what's fueling the weakness is more technical in nature than fundamental.
Basically, what drove the rally in tech - the artificial-intelligence buildout and strong earnings growth - remains intact. So while analysts expect some weakness following such a strong run-up this year, some believe worries of a continued meltdown appear to be misplaced.
The State Street Technology Select Sector SPDR ETF XLK dropped 2.3% to close Wednesday at $176.63, or 10.9% below its June 2 record close of $198.21. Many on Wall Street see a decline of up to 10% from a significant high as a pullback, and a drop of at least 10% to up to 20% as a correction.
The main culprit of the tech weakness has been chip stocks, with the PHLX Semiconductor Index SOX closing Wednesday 12.3% below its June 3 record close. Among the SOX's best performers in 2026, Micron Technology's stock $(MU)$ has dropped 17.4% from its June 3 record close, shares of Marvell Technology $(MRVL)$ have sunk 21.2% since June 4 and Intel shares $(INTC)$ have shed 17.3% from their May 11 record close.
But keep in mind that even with the correction, the XLK exchange-traded fund was still up 22.7% in 2026, while the S&P 500 index SPX has gained 6.2%.
As the chart below shows, it's understandable for investors to feel anxious. When the previous two corrections hit, the selling didn't necessarily accelerate right away, but the downtrends that got them there continued. And full recoveries were months away.
The last correction kicked off on Nov. 20, 2025, about three weeks after the XLK fund closed at a record on Oct. 29. The ETF then languished in correction territory - it never rose more than 10% off that Nov. 20 low - until it made a new low in early February. It didn't bottom until March 30, with a 16.2% decline from its October peak. The recovery off that low was quick, however, as the ETF closed at a fresh record on April 17.
The correction before that became official on March 6, 2025, or a little more than two weeks after its Feb. 19 record close. It didn't bottom until April 8, when it had tumbled 25.8% from its peak. The recovery took a bit longer, as the XLK ETF didn't see a fresh record until June 12.
The recent selling started just a week ago, as jobs and inflation data pushed up the odds that the Federal Reserve will have to raise interest rates, which in turn has investors worried about high tech valuations. There's also concern that peace talks with Iran were on the verge of falling apart, and that investors will need to sell current holdings to raise cash to buy into SpaceX, which is going public later this week.
But as Rob Thummel, a senior portfolio manager at Tortoise Capital, noted, the original premise of the tech boom hasn't changed. "From a macro perspective, the AI industrial revolution continues," Thummel told MarketWatch.
He said AI capital spending - with the four major hyperscalers looking to spend $700 billion on AI infrastructure this year - is actually accelerating, not decelerating. So the recent weakness, particularly in the what was the hottest chip subsector, is presenting investors with "a buying opportunity."
"The spending still seems to be there, the AI applications are coming and you need infrastructure to support them," Thummel said.
Even with the big selloffs in the chip-sector leaders, Micron's stock has still rocketed 212.5% in 2026, Marvell shares have soared 197.2% and Intel shares have surged 190.1%.
"The reality is that chip stocks have had a massive run-up, but for good reason - the fundamentals are there," said Adam Patti, CEO of ETF manager VistaShares.
Patti conceded that given how much they've rallied, chip stocks needed a breather, and worries about Iran and rising inflation and interest rates helped persuade investors to sell some of their winners. And don't forget the SpaceX IPO.
"I think we'll see some type of retrenchment, and then there'll be continued upside based on the fundamentals and the fact that there's so much capex being deployed," Patti said.
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