AI Coding Tools Shake Up Tech: Why Volatility in Software and Semis Is Just Getting Started

If you blinked, you missed it: the great software sell-off of February 2026. One minute, investors were still pretending that SaaS multiples could levitate forever. The next, a new breed of AI coding tools from Anthropic and OpenAI slammed valuations and triggered a sector-wide margin call. The real kicker? The market's already whispering that the worst is over. But is it?

Let's get the facts straight. The software sector just endured a brutal correction, with leading names down double digits in a matter of days. According to Seeking Alpha, the culprit was a fresh wave of AI coding tools that promise to automate away a chunk of the developer stack. Investors, never ones to overreact (except when they always do), dumped software stocks on fears that margins and moats are about to get steamrolled by generative AI. The numbers are ugly: implied volatility in tech surged, while value stocks staged a rare outperformance. Meanwhile, semiconductors, supposedly the picks-and-shovels play, have become the new volatility epicenter, with SMIC’s blowout earnings only adding fuel to the fire.

But the real story is how this volatility is ricocheting across asset classes. While tech and crypto have been busy bleeding, gold and small caps have staged a stealthy rebound. The Nikkei 225 hit a record high, as Japan’s post-election rally defied the global risk-off mood. Treasury yields drifted lower, with the market bracing for US retail sales data that could either confirm or shatter the “soft landing” narrative. In short, the cross-asset correlation regime is shifting, and traders who are still playing last year’s playbook are getting steamrolled.

Here’s where it gets absurd. The same market that panicked over AI-induced software disruption is now bidding up the very semiconductors that make those AI tools possible. SMIC’s 61% profit surge was supposed to be good news for chips, but the volatility spread between tech and small caps is now at multi-year highs. According to Seeking Alpha, implied vol in tech has decoupled from the rest of the market, with algos chasing momentum in both directions. The S&P 500 futures are flat, but under the hood, sector rotations are moving at breakneck speed. If you’re not watching the volatility surface, you’re trading blind.

The macro backdrop isn’t helping. With the Fed still in “wait and see” mode and the next big data print days away, markets are stuck in a holding pattern. But don’t mistake calm for stability. The last time we saw this kind of cross-asset divergence, it ended with a volatility spike that caught everyone leaning the wrong way. The software sell-off may be overdone, but the underlying risk, margin compression from AI automation, isn’t going away. And with semiconductors now the new battleground, expect more fireworks as earnings season rolls on.

Strykr Watch

Technically, the software sector is hanging by a thread. Key support for the major software ETF is sitting just above last week’s lows. If that breaks, look for a quick trip to the next round number. Semiconductors are flirting with overbought territory after the SMIC earnings surge, but the volatility surface suggests more two-way risk ahead. Watch for mean reversion trades as implied vol spikes and then collapses. For the broader market, the S&P 500 is stuck in a tight range, but the real action is under the hood, sector dispersion is at a multi-year extreme. If you’re trading momentum, keep stops tight. If you’re fading moves, size down and respect the tape.

On the macro side, all eyes are on the upcoming US retail sales data. A hot print could reignite the “higher for longer” narrative and slam tech even further. A miss, and you’ll see a classic risk-on rotation back into growth. Either way, expect volatility to stay elevated. The options market is already pricing in bigger moves than realized vol would suggest. That’s a recipe for pain if you’re short gamma.

The biggest risk is that the AI narrative shifts from “margin destroyer” to “growth engine” overnight. If the market decides that AI coding tools will actually expand the total addressable market for software, you’ll see a violent reversal. But for now, the burden of proof is on the bulls. Until earnings stabilize and margins stop compressing, every bounce is suspect.

The opportunity? Look for pairs trades between semis and software. If semiconductors keep running while software lags, the spread will get stretched to breaking. Alternatively, fade the extremes, buy software on capitulation, short semis on euphoria. Just don’t expect a quiet tape.

Strykr Take

This is a market that punishes complacency. The software sell-off may have overshot, but the volatility regime has changed. The days of buying every dip in tech are over, at least for now. If you’re nimble, there’s money to be made fading the extremes. But don’t get cute. The AI narrative is a double-edged sword, and the next headline could flip sentiment in a heartbeat. Stay tactical, keep risk tight, and don’t fall in love with your positions. This is the new normal.

datePublished: 2026-02-10 10:45 UTC