The AI Trade Rotation: Money Is Moving Out of Chips and Into This

However, money appears to have flowed away from chips into software stocks in recent weeks.

Investors shouldn't sell chip stocks because of this apparent rotation, though.

Some investors made a boatload of money throughout much of 2026 by focusing on semiconductors and memory chips. It's no coincidence that the biggest year-to-date winner in the S&P 500 (SNPINDEX: ^GSPC) , as well as three of the five top-performing stocks in the index, were semiconductor stocks .

There's also no secret why these stocks have delivered huge gains. Demand from data centers hosting artificial intelligence (AI) systems has surged. But an AI trade rotation appears to be underway now. Money is moving out of chips and into another area.

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The iShares Semiconductor ETF (NASDAQ: SOXX) owns 30 semiconductor stocks. So far this year, the exchange-traded fund (ETF) is up around 80%. However, the fund has fallen by a double-digit percentage over the last seven weeks.

Meanwhile, another iShares ETF is up by a double-digit percentage during the same period. The iShares Expanded Tech-Software Sector ETF (NYSEMKT: IGV) attempts to track an index of North American software stocks. Its portfolio includes 106 stocks of leading software companies, including Palo Alto Networks (NASDAQ: PANW) , Microsoft (NASDAQ: MSFT) , and Palantir Technologies (NASDAQ: PLTR) .

Why have software stocks become hotter recently while chip stocks have cooled off? One possibility is that investors are shifting their attention to companies that will use AI to make money and focusing less on the companies making the hardware required to run AI apps.