Healthcare stocks spent years struggling with drug pricing uncertainty, patent expirations, and weak investor interest. Now, the sector is making a comeback as investors question whether the AI boom can keep delivering. Fund flows and market performance suggest the shift has been building for months.
The money is moving
Healthcare ETFs attracted roughly $4B over the 65 days through Oct. 19, more than any other sector, according to Baird Strategas. Technology funds lost around $6B over the same period.
The rotation is showing up in stock performance too. Healthcare reached a record high on Oct. 20 as 10 of the 11 major sector funds finished higher, with technology the only exception.
Jim Baird, chief investment officer at Plante Moran Financial Advisors, linked the shift to growing concerns about whether companies spending heavily on AI can generate enough profit to justify those investments.
Investors aren't necessarily abandoning technology altogether. They're looking for other places to put their money while uncertainty around AI spending grows.
Healthcare ETFs led inflows while tech led outflows
Trailing 65-day sector ETF fund flows, through Oct. 19, 2026, in $B
Bar chart. Net Flows ($B). Healthcare: Net Flows ($B) $4. Technology: Net Flows ($B) -$6.
The anti-AI label sticks
The S&P 500 Healthcare Index has climbed roughly 23% since the end of April through Oct. 26, outperforming the broader market and every other sector.
Eli Lilly, AbbVie, and Johnson & Johnson have been among the biggest drivers of that rally.
The gap widened as AI infrastructure company CoreWeave faced pressure over its debt burden. Technology stocks suffered their worst week since the April 2025 tariff shock, while healthcare continued its winning streak.
"The AI pendulum has swung back in favor of non-AI exposure over the last two weeks."
Ari Wald, Oppenheimer
The broader market is showing signs of the same shift. A Goldman Sachs index excluding AI-related companies gained 12.4% through Oct. 22, slightly ahead of the S&P 500's 12% advance.
With technology and AI-linked companies making up roughly 45% of the benchmark, investors have plenty of reason to look beyond the same group of stocks.
What's driving the earnings
The rally isn't entirely about investors avoiding AI. Healthcare's own outlook has improved as some of the biggest policy concerns have started to ease.
Major pharmaceutical companies have committed to expanding US manufacturing, while drug pricing agreements have generally been less damaging than investors initially feared.
Weight-loss treatments remain a major growth opportunity. The global GLP-1 market is expected to grow from nearly $97B in 2026 to around $148B by 2030, according to estimates cited by Lombard Odier.
Healthcare Leading Market Performance
Performance: S&P 500 Healthcare (Apr–Oct '26) vs. YTD Benchmarks (through Oct 22, '26)
Bar chart. S&P 500 Healthcare Index: % Gain 23%. GS S&P 500 ex-AI Index: % Gain 12.40%. S&P 500: % Gain 12%.
The bank expects healthcare earnings to grow 18% in 2027, trailing only information technology. However, one-time factors contribute to that forecast, with underlying growth closer to 10%.
Biotech is also benefiting from improving funding conditions and renewed acquisition activity. Meanwhile, the biosimilars market, valued near $40B in 2025, is projected to grow roughly 18% annually over the next decade.
That gives healthcare several potential growth drivers beyond the current rotation out of technology.
What investors should watch
Healthcare offers an alternative for investors whose portfolios have become heavily concentrated in AI stocks. But the sector's recent gains don't mean every healthcare company offers the same opportunity.
Large US drugmakers trade around historical valuation averages, while several healthcare subsectors remain cheaper after years of underperformance.
The risks also vary. Pharmaceutical companies depend on successful clinical trials and regulatory approvals, while medical device makers and healthcare service providers face different operating pressures.
Government spending is another concern. Planned cuts approaching $1T for Medicaid and $500B for Medicare could eventually weigh on insurance coverage, healthcare spending, and demand.
Broad healthcare ETFs such as the Health Care Select Sector SPDR Fund and Vanguard Health Care ETF offer diversified exposure without relying on the performance of individual drugmakers.
Healthcare already represents roughly 10% of the S&P 500, providing a useful benchmark for investors considering how much exposure to add.
The sector now has something it lacked for years: improving earnings expectations and renewed investor interest. Whether the rally continues will depend on those earnings delivering, rather than simply benefiting from another round of AI selling.
