Key Takeaways:
A long-awaited rotation from semiconductors into software stocks gathered pace Friday, with the gap between the two sectors reaching its widest in months.
The iShares Expanded Tech-Software Sector ETF rose 3.3% while the VanEck Semiconductor ETF slid 3.7%, a 7-percentage-point divergence that marked one of the sharpest sector rotations in tech this year. The move reversed a trend that had dominated 2026, where AI-driven demand for chip processors propelled semiconductor stocks to historic gains.
"The market is repricing the relative value between hardware and software after months of one-directional AI flows," said Sarah Lin, equity strategist at Edgen. "Software names have been left behind, and Friday's action suggests investors are starting to question whether the chip rally has run ahead of fundamentals."
ServiceNow rose 8.3%, Workday gained 6.9% and AppLovin advanced 7.6%, leading the S&P 500's gainers. Palantir Technologies added 5.2%, snapping a seven-session losing streak. The top five performers in the software ETF — Guidewire Software, Intapp, CCC Intelligent Solutions, Tenable Holdings and Life360 — each rose more than 8%. BlackBerry climbed 7.3%, extending a 20% jump from Thursday after strong earnings.
On the semiconductor side, the PHLX Semiconductor Index fell 4.8%. ON Semiconductor plunged 24%, making it the S&P 500's worst performer, after the chipmaker agreed to buy internet-of-things company Synaptics in an all-stock transaction valued at about $7 billion. Synaptics investors will own roughly 12% of the combined company upon closing, expected in mid-2027. ON Semiconductor reiterated its second-quarter financial outlook but offered few details on revenue synergies, fueling dilution concerns. Other laggards in the VanEck Semiconductor ETF included NXP Semiconductors, Microchip Technology, Analog Devices and Teradyne.
The rotation challenges a narrative that had made semiconductors the year's dominant tech trade. With AI spending concentrated in chip infrastructure, software stocks had been under pressure from the view that AI would disrupt existing offerings rather than boost them. Friday's move suggests that calculus may be shifting, though investors will need to see sustained capital flows and upcoming earnings reports to confirm whether the rotation has legs.
This article is for informational purposes only and does not constitute investment advice.
