US Stock Market: AI spending drives chipmakers higher while software stocks falter

In an otherwise volatile year for technology investors, one strategy that has clearly stood out is buying semiconductor stocks while betting against software companies. As 2026 progresses, this divergence is not only persisting, it is widening, reshaping how investors evaluate the broader tech sector.

At the heart of this split is the rapid expansion of artificial intelligence. Demand for AI infrastructure has fueled a surge in semiconductor companies, while the same technological shift is raising concerns about the long-term prospects of software firms. According to Bloomberg, this dynamic has created two distinctly different market environments within the tech industry.

Semiconductor stocks have delivered extraordinary returns. The VanEck Semiconductor ETF (SMH), which tracks major chipmakers, has risen sharply since early 2023, gaining roughly 380% over that period. In contrast, the iShares Expanded Tech Software ETF (IGV) has struggled, posting its worst quarterly performance since the global financial crisis and declining significantly this year, Bloomberg reported.


This gap has also been evident in short-term trading. Bloomberg noted that recent sessions have seen unusually large performance spreads between the two sectors, with chip stocks surging while software shares lagged or declined. On several occasions, the difference in daily returns reached record levels.

Earnings reports have reinforced the trend. Semiconductor companies have benefited directly from AI-driven spending, particularly in data centers and computing infrastructure. Bloomberg highlighted strong outlooks and results from firms such as Texas Instruments and Intel, both of which posted major stock gains following upbeat earnings announcements tied to AI demand.

Software companies, meanwhile, have faced growing uncertainty. Bloomberg reported that earnings from firms like ServiceNow and International Business Machines raised concerns about slowing growth and the disruptive impact of AI on traditional software models. These developments have contributed to sharp declines in some software stocks and a more cautious investor outlook.

The divergence is also reflected in fundamentals. According to Bloomberg Intelligence data, analysts expect semiconductor companies to deliver significantly stronger earnings growth in the coming years compared to software firms. Revenue forecasts for chipmakers have also been revised upward, while expectations for software companies have seen only modest improvements.

Despite the strong performance of semiconductor stocks, some market participants are beginning to question whether the rally can continue at its current pace.

Bloomberg cited market analysts who noted that chip stocks are trading above historical valuation averages, and that recent gains resemble past periods of market excess. However, valuations remain broadly in line with other major indices, suggesting that investors are still willing to pay a premium for exposure to AI-driven growth.

On the other side, some investors argue that the selloff in software stocks may be overdone. Bloomberg reported that certain market participants view the decline as indiscriminate, potentially creating opportunities if sentiment shifts.

Still, the lack of a clear catalyst for recovery continues to weigh on the sector.

For now, momentum remains firmly with semiconductor stocks. Bloomberg noted that many investors are continuing to allocate capital toward areas showing strong performance, reinforcing the trend. This behavior has created a feedback loop in which gains in chip stocks attract further investment, while weakness in software discourages buying.

As artificial intelligence continues to reshape the technology landscape, the gap between these two sectors highlights a broader shift in market priorities. Hardware that powers AI is being rewarded, while software, which was once the dominant force in tech investing, is facing a period of reassessment. Whether this divide represents a lasting structural change or a temporary imbalance remains one of the key questions for investors in the months ahead.