A clear divide is emerging in the US stock market as artificial intelligence continues to reshape investor strategies. In an otherwise volatile year for tech, semiconductor stocks are rising strongly, while software companies are facing pressure.
The shift is driven by growing demand for AI infrastructure. Chipmakers are benefiting directly from spending on data centres and computing power. At the same time, concerns are increasing about how AI could disrupt traditional software business models.
This contrast has created two very different trends within the technology sector. Semiconductor stocks have delivered strong returns, with the VanEck Semiconductor ETF (SMH) gaining about 380% since early 2023. In comparison, the iShares Expanded Tech Software ETF (IGV) has declined this year and recorded its weakest quarterly performance since the global financial crisis.
The gap is also visible in daily trading. Recent sessions have seen large differences in performance, with chip stocks rising while software shares fall. In some cases, the difference in daily returns has reached record levels.
Earnings results have further highlighted this trend. Semiconductor companies such as Texas Instruments and Intel reported strong gains supported by AI-driven demand. Their positive outlooks have pushed stock prices higher.
On the other hand, software companies like ServiceNow and International Business Machines have raised concerns about slower growth and the impact of AI. This has led to declines in several software stocks and a cautious investor sentiment.
Analysts expect semiconductor firms to continue delivering stronger earnings growth compared to software companies. Revenue forecasts for chipmakers have been revised upward, while expectations for software firms remain modest.
Despite the rally, some analysts warn that chip stocks are trading above historical averages, raising concerns about sustainability. However, valuations are still broadly aligned with major indices, showing continued investor confidence in AI-driven growth.
Meanwhile, some investors believe the selloff in software stocks may be excessive and could present opportunities if sentiment improves. For now, however, there is no clear trigger for recovery.
Momentum remains with semiconductor stocks, as investors continue to focus on sectors showing strong returns. This has created a cycle where rising chip stocks attract more capital, while weaker software stocks see reduced interest.
As AI continues to influence the tech landscape, this growing divide reflects a shift in market priorities, with hardware gaining preference over software.
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