markets

Chip stocks post record outperformance of software companies in never-before-seen divergence

One session in 2026 brings one thing we’ve never seen before in markets: a massive divergence between the two big parts of the technology sector.

The VanEck Semiconductor ETF absolutely trounced the iShares Expanded Tech Software ETF today, with the former gaining 3.7% leaving while the latter dropped 2.9%.

The 6.6-percentage point gap is the biggest outperformance for SMH versus IGV on record, going back to December 2011.

Since these two are both parts of a broader technology whole, it’s rare to have one up a ton while the other gets shellacked. The rolling one-year correlation of daily returns for these two ETFs was about 0.8 heading into today.

There have been only three sessions (including today) where the chip stock ETF was up at least 1.5% while the software ETF was down 1.5% or more. We’ve never seen SMH gain 2% while IGV fell 2% before Friday’s session. And there’s been only one session where the reverse happened (November 11, 2024).

The opening trading day of 2026 was phenomenal for the AI picks and shovels trade, while very poor for their more downstream peers.

How and why did this happen? Who knows really, but this looks like the kind of thing where a couple major funds decide to keep their total AI exposure stable but lean into a hardware-over-software tilt when adjusting their positioning at the start of the year, which kicks off intraday momentum that forces everyone else along for the ride.

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AI downstream stocks tumble even as their picks and shovels peers soar

While the AI picks and shovels stocks are enjoying a strong start to 2026, the same can’t be said for the companies more downstream in this theme — even most of the hyperscalers.

The S&P 500’s biggest losers today include:

AppLovin, which is beloved by Wall Street for its heavy use of large language models to deploy code as well as its AI ad-targeting engine.
Cybersecurity companies CrowdStrike and Palo Alto Networks, which utilize AI tools to help combat increased AI-fueled vulnerabilities.
Other AI-linked software companies like Palantir, Adobe, ServiceNow, and Salesforce.
Among the hyperscalers, only Alphabet and Oracle are trading in the green on Friday, while Meta, Amazon, and Microsoft are all down between 1.5% and 2.5% as of 1:38 p.m. ET.

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It’s a new year and traders want the same old AI stocks

The early bet of 2026 is that if there’s an AI bubble, we have some more inflating to do.

The who’s who of AI stocks big and small are starting the year off with a bang.

The major gainers include:

The big three AI chip stocks: Nvidia, Broadcom, and Advanced Micro Devices, as well as foundry giant TSMC.
The memory stocks that led in 2025: Micron, Western Digital, Seagate Technology Holdings, and Sandisk.
Neoclouds CoreWeave, Nebius, IREN, and Cipher Mining.
AI-adjacent energy plays like Bloom Energy, Oklo, and Plug Power.
ASML, the Dutch business whose gigantic photolithography machines imprint circuits on the chips that enable the AI boom.
And finally, AI server company Super Micro Computer.

Is there any specific news driving this? No, not really. This is just a signal of intent that traders kicking off the new year with fresh, unblemished P&Ls are willing to dive headlong into a “new year, same AI-fueled rally” thesis.

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