markets

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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Hardware stocks jump thanks to server demand and record Lenovo revenue

Server stocks are rallying as Dell, Super Micro Computer, and Hewlett Packard Enterprise ride the momentum of Hong Kong-based Lenovo. The PC maker’s stock rose 19% on Friday, hitting an all-time high, on record Q4 earnings.

Powering the positive earnings report was the company’s AI-related revenue, which grew 84% in the fourth quarter and now makes up over a third of total revenue. Investors seem to think the increased demand for servers could have trickle-down effects for other companies.

“The company’s results and commentary reinforced the outlook for strong AI-infrastructure demand while indicating resilient broader traditional server and storage spending,” wrote Woo Jin Ho, a senior technology analyst at Bloomberg Intelligence. “Lenovo’s $21 billion AI-server pipeline and remarks that demand is outpacing supply support Dell’s AI-demand momentum and point to robust orders.”

AI’s insatiable computing demand is reshaping the hardware industry and driving up server demand.

Dell will report first-quarter earnings on Thursday, May 28.

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Ross Stores surges as Q1 results beat expectations, full-year guidance raised

Ross shares are rising after the company delivered strong Q1 results, with sales topping Wall Street’s projections.

The stock soared 6.3% just after the open.

Key numbers:

Earnings per share of $2.02 vs. $1.47 year over year (estimate: $1.72).
Sales of $6.01 billion, up 21% year over year (estimate: $5.61 billion).
Comparable sales growth of 17% (estimate: 8.58%).

CEO Jim Conroy attributed the results to better traffic in stores. “Customer traffic was the primary driver of the strong sales trend as compelling merchandise assortments, higher customer acquisition and engagement from our ongoing marketing initiatives, and an improved in‑store experience are resonating with shoppers.”

The company also noted that transaction volume grew across all key demographics, including “income levels, ethnicities, and age groups, including younger customers.” Sales were also likely buoyed by standard seasonal tailwinds, including consumer spending from tax refunds.

Backed by the strong quarter, the company lifted its full-year targets. Ross now projects same-store sales growth of 6% to 7%, up from the prior forecast of 3% to 4%, topping Wall Street’s estimate of 4.64%. It boosted its annual EPS guidance to a range of $7.50 to $7.74, versus the prior outlook of $7.02 to $7.36.

Ross Stores has been one of the retail sector’s standout performers this year, rising around 20% year to date as of Thursday’s close.

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