Key Takeaways:
The correlation between US semiconductor and software stocks has turned negative for the first time on record, with the 40-day metric for two key ETFs falling to -0.05 as artificial intelligence reshapes investor positioning in the tech sector.
Investors have been “betting on AI capital expenditure, and doing a short on those stocks that are vulnerable to AI disruption,” Brad Conger, chief investment officer at Hirtle Callaghan, said.
The divergence is stark at the individual stock level, with memory chipmaker Micron Technology Inc. soaring more than 150% this year while enterprise software company ServiceNow Inc. has fallen over 33%. This split is reflected in ETF flows, with investors piling into funds like the iShares Semiconductor ETF (SOXX).
This historic split signals a fundamental re-evaluation of the technology sector, forcing portfolio managers to abandon broad tech bets and instead focus on "AI winner" versus "AI loser" pair trades, a dynamic that could accelerate.
For months, a popular trade has been to buy semiconductor stocks and sell software names. That strategy has delivered significant returns as spending on AI computing infrastructure fuels profit growth for chipmakers like Nvidia Corp. and Micron. At the same time, software stocks have been weighed down by concerns that competition from AI companies like OpenAI and Anthropic could erode their business models and long-term revenue growth.
The 40-day correlation between the iShares Semiconductor ETF (SOXX) and the iShares Expanded Tech-Software Sector ETF (IGV) tipped into negative territory last Friday for the first time and deepened to -0.05 on Tuesday. On the S&P 500 level, the correlation between the two sectors, while still positive, has also fallen to its lowest point since 1994.
The bullish case for hardware is supported by executives seeing a new wave of spending. Cisco Systems CEO Chuck Robbins recently said he sees AI fueling a "networking super cycle." This sentiment benefits not just the chip designers but the entire ecosystem enabling AI data centers.
This trend has led to heavy concentration in popular semiconductor ETFs, with a handful of names like Nvidia, Micron, Broadcom, AMD, and Intel capturing the bulk of investor inflows. The outperformance of these companies has created a divergence of more than 180 percentage points between the year's best and worst-performing tech stocks, a gap that highlights the market's new focus on identifying clear AI beneficiaries.
This article is for informational purposes only and does not constitute investment advice.
