Wall Street’s AI Trade Just Flipped. Software Stocks Climb As Chips Fall.

Wall Street's technology trade has undergone a dramatic reversal over the past weeks, with software stocks surging toward record highs while semiconductor shares remain trapped in a bear market, creating the widest performance gap between the two groups in decades.

The divergence began almost precisely on June 22, when chip stocks peaked and software shares bottomed, according to a Yahoo Finance analysis published Tuesday. Since then, trillions of dollars in market value have shifted as investors moved away from many of the semiconductor stocks that dominated the artificial intelligence boom and back toward software companies.

The scale of the reversal becomes particularly striking when the influence of the largest technology companies is removed. The equal-weight SPDR S&P Software & Services ETF has climbed about 24% since June 22. Over the same period, the equal-weight SPDR S&P Semiconductor ETF has fallen approximately 24%.

That nearly 50-percentage-point spread is the largest software-over-semiconductor move recorded by the two ETFs since comparable data began in 2011, Yahoo Finance reported. The trend also extends well beyond the indexes. Of 45 software companies tracked in a Yahoo Finance basket, 37 have risen since June 22. Among a group of 60 semiconductor stocks, 59 have declined.

The resulting shift in market capitalization has been enormous. Software companies in the comparison have collectively gained about $1.5 trillion, while semiconductor companies have lost approximately $2.6 trillion.

Microsoft has been one of the biggest beneficiaries, adding nearly $900 billion in market value since the rotation began. Meanwhile, Micron, Taiwan Semiconductor Manufacturing, Arm and Advanced Micro Devices have collectively lost roughly $950 billion in value.

Mark Newton, head of technical strategy at Fundstrat, told Yahoo Finance that software companies may be benefiting because their correction came earlier. "They've already been through this correction, and now they've started to trade a lot better," Newton said.

Several major software companies illustrate the change. Salesforce hit a bottom on June 22, while Adobe, ServiceNow and Microsoft reached lows within the following three trading sessions. Micron, by contrast, peaked on June 25 as semiconductor stocks began their broader retreat.

Historical comparisons make the divergence even more unusual. Between June 22 and Friday, the S&P North American Technology Software Index gained roughly 19%, while the Philadelphia Semiconductor Index declined about 20%.

Looking at comparable data going back to 1994, the only wider two-month gaps occurred around the peak of the dot-com boom, when both software and semiconductor stocks were rising.

Nvidia is the one major exception to the semiconductor downturn. The AI chip leader has traded largely sideways for roughly four months rather than following the broader semiconductor sector sharply lower. Nvidia fell 2.9% Monday, extending its losing streak to seven sessions, its longest since 2022, but its resilience over the broader period has separated it from many chip rivals.

Despite the historic rotation, Newton is not ready to declare the semiconductor boom finished."[You] want to own tech," he told Yahoo Finance, arguing that technology remains a major source of earnings growth and predicting that semiconductor stocks "will be back."