# Software Stocks Outperform Semiconductors as Investors Rotate to AI Applications

- URL: https://stocks.freetheai.org/news/software-stocks-outperform-semiconductors-as-investors-rotate-to-ai-applications-1ad3ff
- Published: 2026-10-16T15:19:31Z
- Category: technology; sentiment: mixed; impact: medium
- Written by our AI from expert market sources across the web for FreeTheAI Stocks, built by Vibhek Soni
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Investors are moving capital into artificial intelligence software companies and pulling back from semiconductor makers. Over the past three months, the iShares Expanded Tech-Software Sector ETF (IGV) advanced more than 13%, while the iShares Semiconductor ETF (SOXX) declined over 4%. SOXX experienced an eight-day consecutive drop, marking its longest losing streak in over twenty years. Meanwhile, Workday (WDAY) bounced back strongly from a 40% decline in the first quarter of 2026, climbing over 55% in the third quarter and adding more than 2% this week.

This market shift reflects growing investor appetite for software platforms capable of deploying practical AI features rather than hardware infrastructure alone. Broader market measures also gained during this window, with the Roundhill Magnificent Seven ETF (MAGS) rising over 6% and the S&P 500 expanding by 2.7%. Industry analysts note that established productivity software leaders like Microsoft (MSFT) and ServiceNow (NOW) stand to gain as businesses adopt AI user interfaces and software platforms.

Market strategists caution that tech spending patterns may evolve over the coming years. Projections suggest AI application revenue could outshine hardware growth around 2027, with overall AI capital expenditures peaking in 2027 before leveling off in 2028. Investors should monitor short-term market expectations, as strategists warn that the broader market could experience a pullback of 5% to 10% before the end of the year as valuation expectations reset.

## Key points

- The iShares Expanded Tech-Software Sector ETF (IGV) gained over 13% in three months, while the iShares Semiconductor ETF (SOXX) fell over 4%.
- SOXX suffered an eight-session losing streak, its longest decline since May 2006.
- Workday (WDAY) rose over 55% in the third quarter after declining about 40% in the first quarter of 2026.
- Equity strategists project AI software application growth could surpass chip build-outs in 2027, with AI spending peaking that same year.
- Analysts expect a potential 5% to 10% market drawdown by the end of the year as investor expectations reset.

## Questions and answers

### Why are software stocks outperforming semiconductor stocks?

Investors are shifting capital toward AI applications and software platforms that offer productivity tools, causing software funds to rise while chip stocks decline.

### How has the iShares Semiconductor ETF performed recently?

The iShares Semiconductor ETF (SOXX) fell more than 4% over a three-month period and dropped for eight consecutive sessions, its longest streak of losses since 2006.

### When is AI spending expected to peak according to analysts?

AI spending is projected to peak in 2027 and remain flat in 2028, with software applications potentially outperforming semiconductor infrastructure by 2027.