February 27, 2025

Broader Tech Remains Vulnerable

The technology sector experienced a significant correction this week, driven by intensifying fears of AI-led disruption and new macroeconomic pressures coming from tariff uncertainty. Similarly, the Nasdaq Composite had climbed approximately 1.5% this week, following a volatile month.

IBM in particular turned out to be the "canary in the coal mine" for legacy tech this week, with its stock price experiencing its worst single-day crash in 25 years, after new AI tools from Anthropic demonstrated the ability to modernize legacy code faster and cheaper than traditional consultants, threatening a core revenue stream for major IT services firms.

Similarly, the Software as a Service (SaaS) sector has been hit particularly hard, with the iShares Expanded Tech-Software Sector ETF (IGV) down 27% since the start of the year—the steepest quarterly loss since the 2008 financial crisis.

According to Bloomberg, analysts point out that this isn’t just a short-term hiccup. The confluence of stretched valuations, macro uncertainty, and concentrated hype suggests that the tech sector may remain under pressure for weeks, if not months.

Where Smart Capital Is Rotating

Considering the fact that the wider software sector is facing what looks like a historic collapse, the S&P 500’s resilience is quite noticeably remarkable. The broader index remains essentially flat, despite nearly $1 trillion being wiped off from SaaS companies.

The index’s ability to hold steady despite these losses is primarily due to a sharp sector rotation into "Real Economy" industries and semiconductor winners like Nvidia, which have offset the steep declines in legacy SaaS giants.

This rotation represents a structural shift from "Code to Concrete"—a movement of capital away from high-margin software-as-a-service (SaaS) and into physical infrastructure, industrial manufacturing, and commodity-linked sectors.

This is understandable, considering that investors are favoring sectors that provide the physical backbone for the AI economy and those resilient to new 15% global tariffs:

• Energy & Materials: These sectors have risen over 20% and 18% respectively since technology peaked in late 2025, driven by a global manufacturing revival.

• AI Infrastructure: Capital is flowing into "concrete" assets like data center cooling, optical connectivity, and power systems. Key performers include Vertiv Holdings (VRT) and EMCOR Group (EME).

• Industrials: The Industrial Sector (XLI) is a clear leader, up 6.7% YTD, as traditional firms benefit from increased growth prospects despite sluggish manufacturing PMI data.

Inflation Outlook for the Year

So far, the outlook for interest rates seems to be one of cautious stabilization. After cutting rates three times in late 2025, the Federal Reserve held the federal funds rate steady at its January meeting at a range of 3.50% to 3.75%.

The current year is defined by a "wait-and-see" approach as the Fed balances sticky inflation against a cooling labor market, all while preparing for a major leadership transition.

Most major financial institutions expect a "gentle glide" lower, but there is significant disagreement on the timing and depth of cuts:

• Consensus View: Most analysts expect one to two additional 25-basis-point cuts in 2026, potentially bringing the terminal rate to a "neutral" range of 3.00% to 3.25% by year-end.

• Goldman Sachs & Barclays: Have pushed their expected cuts to the second half of the year, specifically forecasting moves in September and December.

• Bank of America: Forecasts two cuts earlier in the summer (June and July).

• J.P. Morgan: Remains the primary outlier, recently withdrawing its forecast for cuts and predicting the Fed will remain on hold for the entire year due to a resilient labor market.

Strategy Spotlight: Next Gen Data Infrastructure

In today’s market, where sectors shift quickly and capital rotates at the speed of new technologies, having a clear investment strategy is pretty much essential. A reactive approach risks chasing hype or overexposing your portfolio to sectors vulnerable to correction, like legacy SaaS.

The key is identifying where structural growth is occurring and aligning your investments with long-term trends, not short-term noise.

Surmount’s Next-Gen Data Infrastructure Thematic Investing Strategy does exactly that. It focuses on companies building the backbone of the AI-driven economy—cloud computing, data storage, networking, and large-scale data centers. By targeting 20 established leaders and rebalancing monthly, this strategy keeps your portfolio aligned with the structural shift from “Code to Concrete,” capturing growth where capital is flowing while avoiding overhyped segments.

Why It Works Now:

• SaaS and legacy tech have faced historic declines, creating an opportunity for sectors underpinning AI and digital infrastructure.

• Investors are rotating into “concrete” assets, from industrial systems to data center operations—sectors with strong structural tailwinds.

• This strategy provides diversified exposure within next-generation infrastructure, reducing risk while positioning for long-term appreciation.

  Learn More

Take Action:
Don’t let market noise dictate your portfolio. Position yourself in the companies powering the AI economy with the Next-Gen Data Infrastructure Thematic Investing Strategy and stay ahead of the structural shifts shaping the next decade.

This Week’s Takeaways

• The tech sector, especially SaaS and legacy IT, faced sharp declines due to AI disruption and macro uncertainty, with some stocks seeing historic losses.

• Investors are rotating capital from high-margin software into physical infrastructure, industrials, energy, and AI infrastructure.

• Semiconductors and companies supporting the AI economy, like data center and networking firms, are outperforming amid sector rotation.

• Interest rates are expected to stabilize, with varying forecasts on potential Fed cuts throughout 2026.

• Focusing on next-gen data infrastructure offers exposure to structural growth while avoiding overhyped, vulnerable tech segments.