An AI trade rotation appears to be underway, with money moving out of semiconductor stocks and into software stocks in recent weeks. The iShares Semiconductor ETF, which holds 30 chip stocks, has fallen by a double-digit percentage over the last seven weeks after gaining around 80% year to date, while the iShares Expanded Tech-Software Sector ETF, tracking 106 North American software companies, has risen by a double-digit percentage during the same period. Possible drivers include investors shifting focus to companies that will use AI to generate revenue and valuation concerns after chip stocks' strong first-half 2026 gains, with Intel now trading at 79 times forward earnings following a more than 170% year-to-date surge. In contrast, many software-as-a-service stocks look cheap after a sell-off earlier this year driven by fears of AI disruption. Despite the rotation, some chip stocks like Nvidia still offer attractive valuations, with a forward earnings multiple of 22.9 and a PEG ratio of 0.55, and investors may benefit from holding both sectors via the two ETFs.
