A tale of two tech sectors

It’s a chipmaker world, and software’s just living in it.

As we’ve written about before, the winners of the AI trade thus far have been the “picks and shovels” of the boom—aka, the hardware companies that make chips and build data centers, the most famous example being Nvidia. Meanwhile, software companies, many of which are trying to embrace AI or incorporate the tech into their services, have borne the brunt of investor skepticism about how the AI boom could upend the tech industry as we know it.

In a recent slate of earnings, the trend is calcifying: A batch of “meh” but not “yikes” earnings reports from software companies has triggered a whole new round of panic from investors.

• ServiceNow plunged 17.75% today after slashing its full year operating-margin guidance and reporting slowing subscription revenue growth, catalyzing its worst day of trading ever, even though profit and revenue for the quarter was in line with expectations.
• Things went from bad to worse for IBM, which fell 8.25% today simply because it maintained its 2026 outlook, despite beating top- and bottom-line expectations.
• Those two earnings reports don’t necessarily point to issues with the entire industry, but the iShares Expanded Tech-Software ETF still spiraled 5.79%—marking a steep selloff in software.

Meanwhile, on the chip side:

• SK hynix not only tripled revenue last quarter, but also projected that demand will outpace supply for the next three years.
• Broadcom, meanwhile, just became the sixth company in US history to pass the $2 trillion market cap milestone after Google announced it’s co-developing its new TPUs with the chipmaker.
• The PHLX Semiconductor index, the chip industry benchmark, gained 1.71% today, and has seen gains for the last 16 sessions—a new record.

The chips are up big

Analysts have gone back and forth in recent weeks about whether this year’s software selloff is overblown. But while it’s true that some specific companies have been hit too hard, the broader story does have legs.

“Without taking any single-company views, we remain constructive on memory, advanced semiconductors, and enabling infrastructure amid earnings visibility through 2026 and into 2027,” explained UBS head of equities Ulrike Hoffmann-Burchardi. “Separately, ServiceNow’s mixed results point to continued pressure in parts of the software sector due to AI disruption.”

But that doesn’t mean that hardware itself doesn’t have its own problems. According to Hoffmann-Burchardi: “Some early signs of soft spots in demand and intensifying competition also suggest that AI infrastructure bottlenecks may be shifting.”—LB