S&P 500 Excluding AI Stocks Outperformed the Index by 6.4 Points in October

In October, the S&P 500 excluding AI stocks outpaced the full index by 6.4 percentage points. This comes amid a decline in AI stocks due to concerns about AI spending and financing costs. AI companies make up about 45% of the S&P 500, and this month they have been weighing on the index.

Most of the advantage accumulated over the past three weeks: non-AI stocks outperformed the index by 7.4 points. According to Bloomberg data published by Kobeissi Letter, there has never been a wider three-week gap in the history of observations. The October difference significantly exceeds the previous monthly record of 3.6 points set in July. Leadership often shifted: non-AI stocks led for 4 months in 2026, the full index for 6.

What is weighing on AI stocks

Concerns about AI spending and rising financing costs began to drag AI stocks down this month. Strong inflation data on October 14 added pressure, increasing expectations of another Fed rate hike: higher rates make debt financing for AI spending more expensive.

Chip manufacturers were hit the hardest: the Philadelphia Semiconductor Index fell for eight consecutive sessions – the longest streak since 2008. Money flowed out of chips into energy and consumer staples: both groups gained double-digit percentages from the start of October to October 22, according to CNBC. The rotation temporarily erased the gap that AI stocks had accumulated since the start of 2026.

Two challenges by the end of October

The record has three sessions left, and two events this week could determine its fate.

The first is the Fed's rate decision today. The market has already priced in a pause: CME FedWatch shows about a 90% chance of holding the rate. Attention is shifting to signals for December, where futures see about a 75% chance of another hike.

The second is the reports from Microsoft and Alphabet this week. Meta shares fell more than 9% last week after the first negative free cash flow. Evercore analyst Mark Mahaney noted that reports from the largest cloud providers could increase capital expenditures to $100 billion.

The dynamics of AI stocks have already begun to improve ahead of both events: the semiconductor index rose by about 7% over three sessions to October 27. The record advantage of July turned into a lag of 5.1 points over two months. Whether the October record holds depends on whether this week alleviates or intensifies doubts about AI spending.