California’s two largest public pension systems were already trimming their exposure to Silicon Valley’s biggest tech names well before the scandal involving Nvidia CEO Jensen Huang rattled markets this month — a sign that fund managers had grown wary of an overheated AI sector long before the recent turmoil.
Huang’s stock took a steep hit after reports surfaced of his affair with an alleged Chinese spy, adding to a broader selloff in tech shares following last week’s midterm elections, when Democratic gains fueled investor anxiety over potential regulation. The S&P 500 shed roughly $2.8 trillion in value in a single day as the political landscape shifted.
But the retreat from tech stocks didn’t start there. According to an analysis by the Financial Times, the California Public Employees’ Retirement System — the nation’s largest public pension fund — had already unloaded about 26% of its holdings in the so-called Magnificent Seven tech giants during the first half of 2026. CalPERS Deputy Chief Investment Officer Anton Orlich told the Times the move was aimed at spreading out equity risk rather than reacting to any single company’s troubles.
That shift followed a September board meeting where CalPERS officials candidly discussed the risks and rewards tied to the fund’s artificial intelligence investments.
The California State Teachers’ Retirement System, the state’s other pension giant, has been watching the same trends with similar unease. At a September meeting, CalSTRS advisers noted that just seven publicly traded companies now account for roughly one-third of the total value of U.S. stock markets — a concentration level unmatched since the dot-com bubble of 1999 and 2000, which famously ended in a crash.
CalSTRS Chief Investment Officer Scott Chan used the moment to urge caution, telling the board that diversifying the portfolio mattered more than ever given how long the current bull market has run, rather than pouring additional money into an already crowded sector.
The warning proved timely. While shares of Apple, Microsoft and Amazon have posted modest gains of 2% to 4% this month, Nvidia’s stock sank 22% and kept falling after Huang confirmed the affair. Tesla, Alphabet and Meta also slid, with the latter two posting double-digit percentage losses.
Despite the volatility, strong stock performance over the past year has helped both pension funds exceed their financial targets. CalPERS, which manages more than $650 billion in assets, reported a 14.8% investment return for the 2025-26 fiscal year — more than double its 6.8% target. CalSTRS, with assets topping $415 billion as of September, posted a 13.9% return over the same period.
In other California news, voters have officially rejected Proposition 40, the ballot measure that would have imposed a one-time wealth tax on the state’s roughly 200 wealthiest residents. The measure was the most expensive and contentious fight on the November ballot, drawing hundreds of millions of dollars in opposition spending from billionaires and splitting Democratic groups over concerns it might push high earners out of state. Gov. Gavin Newsom opposed the measure, as did the California Teachers Association and Planned Parenthood.
“Proposition 40 was a reckless experiment conducted on our state’s economy with little regard for the harms it would cause,” said Evan Westrop, a strategist for the No on Prop. 40 campaign.
Election officials are still finalizing results for Proposition 42, which would bar new taxes on assets and currently holds a lead. Separately, Proposition 38 has been confirmed as passing, authorizing $8.4 billion in bonds to fund medical research in California.
In legal news, a divided panel of the 9th U.S. Circuit Court of Appeals issued a split ruling Monday on California’s landmark corporate climate disclosure laws. The court upheld the state’s authority to require large companies to report their direct greenhouse gas emissions but struck down provisions that would have forced businesses to account for emissions generated by their suppliers and customers, or to disclose how climate change might affect their financial outlook. The majority found those broader requirements likely violate corporate free-speech protections.
The ruling, stemming from a lawsuit filed by business groups led by the U.S. Chamber of Commerce, still allows California to move forward with its first-in-the-nation emissions reporting mandate, which applies to roughly 2,000 large public and private companies. One dissenting judge argued both laws should have been blocked entirely. Either side could now appeal to the full 9th Circuit or the U.S. Supreme Court.
Separately, CalMatters is teaming up with Your Local Epidemiologist to gather input from Californians on pressing public health issues. This week’s survey focuses on the health effects of rising online gambling activity and perimenopause, and takes about two minutes to complete.
Original source: CalMatters
