We Now Know for Sure That the Software Apocalypse Selloff Was Overdone. Buy Cloud and Software Stocks Now to Profit.

When investors obsess over the artificial intelligence (AI) trade, they tend to look exclusively at hardware, buying up chip designers like Nvidia (NVDA) or memory manufacturers like Micron (MU). But there’s another component of this “just trust us” rally in AI-related stocks. Infrastructure software names have been left behind.

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Look no further than the Global X Cloud Computing ETF (CLOU). This fund had put shareholders through a pair of $26 to $18 moves. And that’s just since February of this year! So there’s volatility and a feast for swing traders.

But is there life beyond this? Or is it getting cloudy again, as CLOU again knocks up against the $26 level.

While the S&P 500 Index ($SPX) and the hardware-heavy tech indexes have spent the past several years melting vertically higher, CLOU has languished in a prolonged structural consolidation. But as the mega-cap hardware trade gets top-heavy and faces a looming depreciation trap, capital is beginning to rotate. The cloud software stocks do show signs of putting in a major multi-year floor, and CLOU is uniquely built to benefit from the exact moment the market realizes that hardware is nothing without the apps that run on it.

The only question I have is whether the systematic way markets now trade could stop progress. This is not a market known for distinguishing between sub-sectors for very long.