AI Stocks Split as Investors Favor Profits Over Promises

Market Pullback Exposes Divide Between AI Winners and Losers February 17, 2026

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AI Stocks Face a Reality Check

Good Morning,

The AI trade is starting to crack. Investors are rotating away from weaker, hype driven names and rewarding companies that can show real earnings and steady demand. We break down what's driving the split, why it matters for tech heavy portfolios, and where rising Treasury yields could still pressure valuations. If you're indexed to the S&P or concentrated in AI leaders, this is the setup to watch.

Costco challenges Trump-era tariffs amid rising inflation data, California drivers face a sharp gas price spike from refinery shutdowns, and Wendy's plans hundreds of store closures after a steep same-store sales drop.

Don't forget to voice your opinion in my polls below.

Here are your Morning Bullets.

– Truly yours, Fred Frost

📉 Yesterday's Market Recap

Friday's market action was a mixed bag, with holiday-thinned trading amplifying volatility. Silver stumbled while broader indices held steady ahead of the Presidents Day break. Key stories below paint the picture of a market wrestling with dollar strength and supply shocks.

Silver Slides 2%: Spot silver (XAG/USD) dropped to near $76.10 after a volatile session, pressured by a firmer dollar and low holiday liquidity. → Seeking Alpha

Coffee Prices Surge: U.S. coffee costs jumped 18.3% in the past year, driven by climate-hit crops in Brazil and Vietnam, squeezing consumer budgets. → Fortune

Shale Oil Slowdown: U.S. shale wells face rapid depletion, with 80% of output in the first two years, signaling a potential peak within five years. → MarketWatch

📉 Daily Performance Snapshot

Index/Asset	Closing Value	Change
S&P 500	6,836.17	+3.41 (+0.05%)
Nasdaq	22,546.67	-50.43 (-0.22%)
Dow Jones	49,500.93	+48.93 (+0.10%)
Gold	$4,969.00	+$19.80 (+0.40%)
Crude Oil	$62.98	+$0.09 (+0.14%)
Bitcoin	$68,755.00	-$94.00 (-0.14%)
10-yr Treasury Yield	4.04%	-5 bps (-1.22%)

🔭 What to Watch Today

Today's calendar isn't packed, but key developments could sway markets. Keep an eye on geopolitical moves and corporate updates for potential ripples.

China Visa-Free Expansion: Starting today, UK and Canadian citizens gain 30-day visa-free access to China, a move to boost tourism and business ties post-diplomatic talks. → ABC News

ZIM Shipping Acquisition Fallout: After a 38% pre-market surge on news of a $4.2 billion buyout by Hapag-Lloyd, watch for volatility in ZIM Integrated Shipping shares. → Benzinga

Compass Pathways Data Reaction: Following a 23% pre-market jump on positive Phase 3 trial results for depression treatment, CMPS stock could see heavy trading volume. → StockTwits

💡 Opportunity Watch

Amid market uncertainty, a few sectors and companies are flashing potential. Here are three areas where smart money might find an edge today.

Valero Energy (VLO): With access to discounted Venezuelan crude post-policy shift, Valero could save $58 million in March alone—refining margins are already up 64%. → The Street
Defense Sector IPOs: Czechoslovak Group's $3.8 billion IPO highlights a doubling in defense valuations since 2022—government spending trends suggest more upside. → Global Finance Magazine
India's AI Infrastructure: With $200 billion targeted for data centers, including major commitments from Google and Amazon, India's tech push could fuel long-term growth. → ABC News

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The Big Bullet

AI "loser" stocks slide as investors favor proven results over big promises

What happened: A fresh wave of selling hit smaller and weaker-performing AI stocks. Investors were reminded that the selloff in "AI losers" has roots going back to 2022, when money started moving toward safer choices. Some AI firms had climbed fast on hope, even before their sales and profits could catch up. As markets turned more careful, those high-hype names became easier to dump. The move looked less like a single-day shock and more like a continued shift in mood. Traders also seemed to separate "AI talk" from "AI earnings." Companies with shaky balance sheets or unclear plans took the biggest hits. The result was a wider gap between AI winners and AI strugglers. In short, the market treated AI like a business cycle, not a magic story.

Why it matters: This kind of split market can change where new investment money goes next. When investors pull back from risky AI names, it can lower prices across the whole "growth" corner of the market. At the same time, it can push more cash toward bigger firms that already have customers, cash flow, and scale. New product news can also move prices quickly, especially when it points to real demand. That is why people are watching possible winners from Chinese New Year AI launches for clues on what users actually want. If demand is real, strong companies can keep gaining even while weaker names fall. If demand is weak, the selling can spread and last longer. For everyday investors, this is a reminder that "AI" is not one trade—it is many different businesses. The market is starting to price that difference in a stricter way.

What's next: Watch for new updates that show who is building AI tools people pay for, and who is just talking. Hardware and infrastructure names may get extra attention if buyers expect steady spending on chips, servers, and data centers. A useful guidepost will be which hardware stocks look best positioned for AI, since that can shape where money rotates next. Also watch whether big-tech leaders keep drawing buyers as a "safer AI" choice. One signal of that trend is Bill Ackman buying shares of Meta Platforms, which can influence how other investors think about large-cap value. In the near term, sharp moves can come from earnings reports, guidance, and any surprise changes in spending plans. If companies say they are cutting AI budgets, markets may react fast. If companies say demand is growing, investors may reward the stronger names and keep punishing the weak ones. Either way, expect more "separating" inside the AI space instead of one big wave up or down.

Reader Feedback

Last time, I asked you: Which do you think is more likely to happen next?

The majority of you at 37% said "AI will replace a lot of office jobs"

Marcus from Oklahoma replied: "I think AI will replace a lot of office jobs because computers can now do many tasks people used to do."

Here's what I'm asking you today:

What do you think is really driving the drop in weaker AI stocks?

Too much hype, not enough profits

High interest rates are squeezing growth stocks

Big investors are cashing out early

Not sure / no strong opinion

Other

As always if your opinion is not here, or you want to throw your two cents at me, reply to the E-mail, and let me know your exact thoughts.

🧭 Policy & Market Ripples

Costco's Tariff Fight: Costco sues the Trump administration over broad tariffs, seeking refunds as Harvard research shows a 0.7% CPI hike since March 2025. → The Street
California Gas Spike: Gas prices in California surge 40 cents in two weeks to $4.58/gallon, far above the $2.92 national average, due to refinery closures. → Fox Business
Wendy's Store Closures: Wendy's plans to shutter 298-358 U.S. locations in 2026 after a 10% same-store sales drop, pivoting to value menus for recovery. → Fortune

📜 This Day in History – February 17

February 17 is a blueprint for how creative work becomes industry: patents formalize invention, new media formats scale, public institutions commit to knowledge, and city infrastructure quietly reinvents daily life.