LIVE MARKETS-Semis vs Software: Who will triumph in this techno-thriller?

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SEMIS VS SOFTWARE: WHO WILL TRIUMPH IN THIS TECHNO-THRILLER?

U.S. semiconductor and large-cap software stocks have performed evenly over the last 100 trading days or so, which is actually a relatively rare occurrence. So which tech play is about to outperform?

Jessica Rabe, co-founder of DataTrek Research, has a view on the matter.

For the semiconductor sector, she uses the VanEck Semiconductor ETF SMH.O. For the software sector, she uses the iShares Expanded Tech Software ETF IGV.P.

Here is a rough recreation of DataTrek's chart showing the trailing 100-day relative price returns between semis and software from around 2012 to the present:

Rabe makes three main points on this chart:

1) On average, she says semis and software performed more evenly pre-pandemic, but since 2020, semis have mostly outperformed, amid increased volatility.

2) Over the past year, she says that semis and software "just had the most extreme moves they’ve ever experienced" looking back to around 2010.

3) Semis and software's relative performance is now "back to par," a place it rarely sits for long, so to her history suggests one is about to break higher on a relative basis.

Rabe's view is that semis are now poised to outperform software given the latter’s recent outsized outperformance.

"Semis have been the place to be over the longer run versus Software since 2020, even before the debut of ChatGPT in November 2022. Enthusiasm over Gen AI added fuel to the fire, which is now starting to reignite given fewer concerns about the Trump administration’s trade/tariff policies," writes Rabe in a note.

That said, Rabe cautions that in order to like semis, you need to be bullish on Nvidia NVDA.O and Taiwan Semi (manufacturer of NVDA’s chips), given that these two stocks account for nearly a third of the SMH.

NVDA and TSM are up 42% and 38%, respectively, since the broader U.S. equity market’s closing lows on April 8th, beating both the S&P 500 index .SPX (+19%) and Nasdaq composite .IXIC (+26%).

To Rabe, "That shows momentum is in the Gen AI theme, and therefore Semis’ favor."

(Terence Gabriel)

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