Can Your Income Portfolio Survive a Big Tech Selloff?

What Happens to Your Income Portfolio if Big Tech Stumbles?

Artificial intelligence has become one of the most powerful forces driving the U.S. stock market. Companies developing AI technology have delivered extraordinary earnings growth, while billions of dollars are flowing into data centres, semiconductor manufacturing and computing infrastructure.

But the market's growing dependence on AI raises an important question for investors: What happens if the AI boom loses momentum?

For Canadians investing in U.S. dividend stocks, broad-market ETFs, or covered call funds, the answer may be more complicated than it first appears. That's because AI isn't simply benefiting technology companies. Its influence extends across a surprisingly large portion of the economy.

And yet, many businesses continue to have earnings drivers that are largely independent of AI.

Understanding the difference could be critical to protecting both investment income and portfolio value.

A strong market, but who's driving the earnings?

Wall Street expects another exceptional quarter of corporate profits. According to NYSE data based on FactSet estimates, S&P 500 earnings were projected to grow approximately 29.5% year over year in the third quarter of 2026.

But Reuters reports a striking contrast: excluding the seven technology-oriented giants commonly known as the Magnificent Seven, earnings growth is expected to be only about 5%.

Separate published estimates with slightly different dates and methodologies; useful for illustrating concentration, not a precise decomposition of index earnings. For illustrative purposes only.

These numbers don't mean the other 493 companies are struggling. In fact, FactSet anticipates year-over-year earnings growth across all 11 S&P 500 sectors.

Rather, they highlight how heavily the market's extraordinary overall growth depends on a relatively small group of companies.

For income investors, that's worth examining. A portfolio holding several U.S. equity ETFs may appear diversified while remaining heavily exposed to the same market leaders.

The AI boom extends far beyond Silicon Valley

Consider what happens when a major technology company decides to build a new AI data centre.

It purchases semiconductors and servers, but it also needs electricity, buildings, cooling systems, copper, steel and access to financing. That creates business opportunities for utilities, construction companies, industrial equipment manufacturers, materials producers and financial institutions.

The result is a ripple effect that reaches well beyond technology.

But that creates a less obvious investment risk: owning an energy, utility or industrial ETF doesn't necessarily mean you're insulated from an AI downturn. Some of those businesses may increasingly depend on the very spending boom investors are trying to diversify away from.

What else is supporting corporate earnings?

Fortunately, AI is far from the only source of economic activity.

Energy companies benefit from global commodity demand and supply constraints. Banks generate profits from lending and financial services. Consumer staples companies sell products households need regardless of technology trends. Healthcare businesses benefit from aging populations and medical innovation.

Inflation also plays a role, although not always a positive one. Higher commodity prices can benefit energy producers, while companies with pricing power may pass along rising costs. Conversely, inflation can squeeze consumers, increase borrowing costs and undermine corporate margins.

The important distinction is between businesses benefiting directly from AI investment and those supported by more independent economic forces.

Illustrative economic relationships, not forecasts of sector performance. Exposure varies considerably among companies within each sector. For illustrative purposes only.

This suggests corporate earnings may be more resilient than the concentration of stock market gains implies. But resilience depends on what causes an AI slowdown.

Not all AI downturns are created equal

Imagine three possibilities.

First, technology stock valuations fall, but AI spending continues. Investors might decide they've been paying too much for future growth. Technology share prices could decline substantially even as underlying businesses remain profitable and infrastructure investment continues. Other sectors might experience relatively little direct earnings disruption.

Second, technology companies significantly reduce AI capital spending. Now the consequences spread further. Suppliers of electrical equipment, construction services, semiconductors and industrial materials could face weaker demand. Utilities and property developers counting on future data-centre expansion might need to reassess their growth expectations.

Third, an AI downturn contributes to a broader economic slowdown. Reduced investment, employment and consumer spending could pressure earnings throughout the economy. Even businesses with little direct AI exposure might suffer.

The distinction matters because a decline in technology stock prices is not necessarily the same thing as a decline in corporate earnings across the economy.

What does this mean for income investors?

The implications depend partly on how investors generate their income.

Dividend-paying equities: Companies with dependable cash flow, manageable debt and sustainable payout ratios may continue paying dividends through a technology correction. But a generous dividend yield offers little comfort if the underlying business deteriorates and its share price falls sharply.

Covered call ETFs: These funds earn option premiums by selling some potential future share-price appreciation. Higher market volatility can increase available premiums, but those premiums do not eliminate losses when underlying investments decline. An ETF holding technology-heavy equities remains exposed to technology-heavy risks, regardless of how frequently it distributes income.

Fixed-income investments: High-quality bonds can provide contractual interest payments and may diversify equity risk. But longer-duration bonds are vulnerable when interest rates rise, while corporate bonds can suffer when credit conditions deteriorate.

Canadian investors also face an additional consideration: currency movements. Changes in the Canadian dollar can amplify or offset returns from U.S. investments when measured in Canadian dollars.

Diversification is about earnings drivers, not ETF names

The lesson isn't necessarily to reduce technology exposure or abandon broad-market ETFs. AI may continue generating substantial economic value for years.

Instead, income investors should look beneath their ETF holdings to understand what actually supports the distributions they receive.

An investor holding a U.S. equity ETF, a technology ETF and a covered call ETF might own three different products but remain heavily dependent on many of the same companies.

Meanwhile, businesses supported by consumer necessities, healthcare demand, infrastructure replacement or independent commodity cycles may provide different sources of earnings.

The objective isn't to eliminate exposure to AI. It's to avoid depending too heavily on a single economic outcome.

Ultimately, the number of ETFs in your portfolio matters less than the number of genuinely independent sources of earnings supporting your investment income.

Disclaimer

This article is for information purposes only and should not be relied upon as investment advice. We strongly recommend that you consult your investment professional for a comprehensive review of your personal financial situation before undertaking any investment strategy. Information herein is subject to change without notice. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.