LIVE MARKETS-Semis could continue to see more support than software

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SEMIS COULD CONTINUE TO SEE MORE SUPPORT THAN SOFTWARE
Large-capitalization U.S. semiconductor stocks have recently sharply outperformed software companies, and semis could continue to have the price momentum and fundamentals to support them further, according to Jessica Rabe, co-founder of DataTrek Research.
Semis have been supported by increased demand to build out infrastructure behind generative artificial intelligence, while software firms "risk being disrupted by advances in AI tools that businesses can use instead of relying on these companies," she writes in a note Tuesday.
"Over the last 100 trading days, Semis outperformed Software by 56.0 points, an all-time high and almost 5 standard deviations (59.3 points) above the long-run average," Rabe notes, using the VanEck Semiconductor exchange-traded fund SMH.P and the iShares Expanded Tech-Software ETF IGV.P for comparison.
While in the 2010s, the performance of the two groups had been more even, semis have been outperforming widely since 2020 and especially since 2023, she notes.
And even though software may look like a good buy for investors seeking out a contrarian or oversold trade, software's "unprecedented underperformance suggests that its underlying fundamentals face structural headwinds that don’t necessarily support an immediate 'reversion to the mean' trade," she says.

(Caroline Valetkevitch)

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