Software stocks post record margin over chips in historic market split
A multitrillion-dollar reversal has seen software equities surge to near-record highs while semiconductor stocks remain in a bear market, creating the widest performance gap in ETF history.
A historic divergence has emerged in the technology sector, with software stocks surging to near-record highs while semiconductor equities remain entrenched in a bear market. This reversal, which began in late June, has created the widest performance gap between the two groups in the history of exchange-traded funds. The shift represents a significant change in market leadership, with software adding approximately A$1.5 trillion in market value over the period, while the chip sector has shed roughly A$2.6 trillion.
Data from Yahoo Finance indicates that the equal-weight SPDR S&P Software & Services ETF has gained about 24 per cent since June 22, while the equal-weight SPDR S&P Semiconductor ETF has fallen by a similar margin. This nearly 50-percentage-point spread is the widest comparable move in the ETFs’ history, which dates back to 2011. In a broader analysis of 45 software stocks, 37 have risen since the pivot point, whereas 59 of 60 chip stocks have declined.
The magnitude of the value transfer is substantial. Microsoft alone has added nearly A$900 billion in market capitalisation since the turn. Conversely, major semiconductor players including Micron, Taiwan Semiconductor Manufacturing, Arm, and AMD have collectively lost approximately A$950 billion. The S&P North American Technology Software Index gained about 19 per cent from June 22 through Friday, while the Philadelphia Semiconductor Index fell by roughly 20 per cent.
Mark Newton, head of technical strategy at Fundstrat, noted that software stocks had already navigated their correction phase earlier in the year. He observed that the sector had bottomed out in late June, with Salesforce hitting its low on June 22 and other major names like Adobe, ServiceNow, and Microsoft making their lows within the following three sessions. In contrast, Micron peaked on June 25, marking the start of the broader semiconductor decline.
Nvidia has remained a notable outlier in this dynamic. Despite recording its worst trading day since July on Monday, the chipmaker has traded sideways for roughly four months. Its performance has resembled that of megacaps that avoided the broader chip sell-off, rather than the semiconductor group as a whole. This resilience sets the stage for Nvidia’s earnings report on Wednesday, which will test its ability to continue defying the sector-wide downturn.
Historical context underscores the uniqueness of the current split. The only wider two-month software-over-chips gaps in data going back to 1994 occurred around the dot-com peak, a period when both sectors were surging. The current environment is distinct because it features a rise in software values concurrent with a fall in chip stocks, marking the largest on-record divergence under these specific conditions.
