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Luke Kawa1/2/26

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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Applied Digital, WeRide, and Recursion Pharmaceuticals dip as Nvidia exits positions

Three stocks took a dip in after hours trading on Tuesday after Nvidia’s 13F filing showed the chip designer sold its stake over the final three months of 2025:

Applied Digital, a data center operator in which Nvidia was the seventh-largest holder as of the end of Q3.
- That being said, Nvidia still has some quasi-direct Applied Digital exposure through its still-substantial CoreWeave position. The neocloud acquired warrants in APLD last June.
WeRide, the Chinese self-driving firm.
Recursion Pharmaceuticals, which engages in AI-driven drug development.

Nvidia also sold its holdings of Arm Holdings, but that was offset by some good news: part of Nvidia’s expanded pact with Meta will see Arm-based CPUs assume a more prominent role in data center environments, which may help boost its volumes and selling prices.

Nvidia added positions in Nokia, Intel, and Synopsys in Q4, all of which had been previously announced via press releases. Its Coreweave and Nebius positions were unchanged relative to Q3.

Nvidia enhances partnership with social media giant Meta to deploy “millions” of its GPUs

Winners: Nvidia, ARM. Losers: AMD, Broadcom, Intel, Arista.

Nvidia CEO Jensen Huang interviews Meta CEO Mark Zuckerberg at the 2024 SIGGRAPH conference in Denver, CO on July 29, 2024.

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Sandisk drops after Western Digital confirms plan to unload $3 billion in stock

Western Digital is cashing in more of its Sandisk position.

The hard drive seller is exchanging more than $3 billion in Sandisk shares as part of a debt-for-equity swap.

The two companies were once one, but Western Digital spun off a little more than 80% of its flash drive business in February 2025, and already exchanged the lion’s share of what remained in a separate debt-for-equity swap in June.

This move was very, very well telegraphed by Western Digital, which recently confirmed plans to monetize its Sandisk position before the one-year anniversary of that split (February 21). And Sandisk’s press release makes clear that the company is not the one selling more stock or making any money off of this.

That being said, being a high-flying stock that has a Bloomberg headline with “secondary offering” in it could, in theory, spark some turbulence.

Shares of Sandisk have indeed extended the day’s losses to more than 8% in the after-hours session before paring some of that decline.

Western Digital announces additional $4 billion in share buybacks, with management poised to unload its remaining stake in Sandisk

The two companies were once one, but Western Digital spun off a little more than 80% of its flash drive business in February 2025, and already exchanged the lion’s share of what remained in a separate debt-for-equity swap in June.

This move was very, very well telegraphed by Western Digital, which recently confirmed plans to monetize its Sandisk position before the one-year anniversary of that split (February 21). And Sandisk’s press release makes clear that the company is not the one selling more stock or making any money off of this.

That being said, being a high-flying stock that has a Bloomberg headline with “secondary offering” in it could, in theory, spark some turbulence.

Shares of Sandisk have indeed extended the day’s losses to more than 8% in the after-hours session before paring some of that decline.

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Cadence Design Systems jumps after Q4 earnings, 2026 profit outlook, and sales backlog exceed estimates

Cadence Design Systems jumped in after-hours trading on Tuesday, briefly erasing the day’s big losses, after posting better-than-expected Q4 earnings, a big pipeline of future business, and a solid profit outlook for 2026.

For Q4, the electronic design automation company reported:

Sales of $1.44 billion (estimate: $1.42 billion).
Adjusted earnings per share of $1.99 (estimate: $1.91).
Remaining performance obligations (RPO) of $7.8 billion (estimate: $7.25 billion).

Management said that 2026 adjusted earnings per share would range between $8.05 and $8.15, above the consensus call for $8.03.

In recent weeks, investors have worried that Cadence’s software business, which is used by chip designers, could suffer competitive pressure from AI tools. At the very least, that RPO figure says there’s billions of dollars standing between Cadence and any more disrupted future.

Infleqtion CEO Matt Kinsella on how the newly public quantum computing company is “following in the footsteps of Nvidia”

Infleqtion shares gained double digits in their opening session, while peers sold off.

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