Software stocks have gained momentum after spending much of 2026 under pressure from concerns that artificial intelligence would weaken the industry's long-term growth prospects. At the same time, semiconductor shares, which fueled much of the market's advance this year on expectations of massive AI-related spending, have pulled back as investors reassess whether planned investments in AI infrastructure will fully materialize, Bloomberg reported.
A widely followed software index has gained 2.2% in July, trimming its year-to-date decline to 12%. By comparison, the Philadelphia Semiconductor Index (SOX) has fallen 12% this month, although it remains up 78% for the year after posting its strongest quarterly performance on record.
The changing trend has become unusually pronounced. Data compiled by Bloomberg showed semiconductor stocks recorded both their biggest single-day outperformance and their biggest single-day underperformance against software shares last month. The 40-day correlation between the two sectors also turned negative for the first time since Bloomberg began tracking the data in 2001.
Bob Doll, chief investment officer at Crossmark Global Investments, said he has been increasing exposure to software companies while reducing semiconductor holdings after the sharp divergence between the two sectors.
"When things get stretched this far, my view is you should bet against the wind a bit," Doll said, according to Bloomberg. He added that semiconductor shares had become significantly more expensive while software companies had been heavily discounted.
Wall Street analysts have also become more constructive on several software names. Last week, Guggenheim upgraded Salesforce, ServiceNow, and Check Point Software Technologies, arguing that concerns over artificial intelligence permanently disrupting the software industry had become excessive. Shortly afterward, HSBC upgraded Adobe to Buy from Hold, saying investors were overstating the threat posed by AI-powered design tools, MarketWatch reported.
Pressure has increased on semiconductor stocks during the past two weeks. Earlier this week, Reuters reported that Chinese artificial intelligence company DeepSeek is developing its own AI chip, adding to investor concerns about future demand for established chip suppliers. The report contributed to a sharp decline in semiconductor shares as investors reassessed the industry's competitive landscape.
Investor sentiment also weakened after reports that Meta Platforms plans to sell access to parts of its AI cloud computing infrastructure. The move raised questions about whether some technology companies may have more computing capacity than they currently need. Bloomberg first reported the initiative, while analysts at Scotiabank said the development had prompted investors to examine whether future AI capital spending could moderate without indicating that Meta was reducing its broader AI ambitions.
High-profile investors have also added to the cautious tone surrounding semiconductor stocks. Michael Burry recently disclosed short positions in Nvidia, Applied Materials, and the iShares Semiconductor ETF, describing the exchange-traded fund as significantly overvalued. Separately, reports that OpenAI delayed previously discussed public listing plans amid heightened market volatility also added to investor caution surrounding AI-related investments, according to Bloomberg.
Despite the recent pullback, analysts continue to see solid underlying fundamentals for semiconductor companies. Bloomberg Intelligence estimates the sector will deliver 47% earnings growth in 2027, with those projections increasing in recent weeks. By comparison, earnings growth expectations for the software and services industry currently stand at 16.5%, while analyst forecasts have gradually declined over recent months.
