Meet the new AI winners as investors flip from semiconductors to software
Chip demand ex-AI is faltering, and AI-enabled software is in ascendance. Crypto’s helping, too.
Software is back to eating the world — with a big assist from crypto.
The tech-heavy Nasdaq 100 has marginally outperformed the S&P 500 since the US election, even as semiconductor stocks have barely been treading water.
The new leaders in tech? The software stocks that were largely abandoned as investors focused on utilities and semiconductors — pockets of the market most sensitive to the AI build-out and associated demand for electricity.
The sweepy top-down story for this changing of the guard looks something like this:
Worries that semiconductor spending would crowd out demand for software amid the AI boom proved overblown. Not only that, but the investable artificial-intelligence theme itself has shifted downstream, with AI-enabled software companies like AppLovin and Palantir posting massive gains and flows no longer favoring the so-called Magnificent 7 stocks. Meanwhile, we’re living in a world of extreme bifurcation within the semi space, where spending on top-of-the-line chips from Nvidia used to power the AI boom is still strong (though slowing), while demand ex-AI has been moribund.
A smattering of examples over the past few months:
October: Dutch semi-equipment supplier ASML reported order bookings far below Wall Street’s expectations.
November: Applied Materials posted underwhelming sales guidance.
December: Microchip Technology announced the shuttering of a factory in Arizona due to soft demand.
Another subplot of the return of software supremacy, however, is that it’s also crypto in drag.
Two of the top three stocks in the iShares Expanded Tech Software ETF since the US election have been MicroStrategy (levered bitcoin buyer) and Marathon Digital (bitcoin miner that’s now also aping the Saylor strategy), with both up more than 50% over this period.
