AI Profits Surge, but Software Stocks Get Clipped: Why the Real Winners Aren’t Who You Think

The market’s favorite parlor trick in 2026 is to talk about AI profits like they’re manna from heaven, while quietly dumping software stocks out the back door. Commodities and world equities are up double digits to start the year, but the software sector is getting the cold shoulder, losing both price and index weighting as traders rotate into anything with a whiff of real-world exposure. What’s driving the disconnect? And more importantly, who’s actually winning in this AI gold rush?

Let’s start with the carnage. Last Thursday, software names got torched, as fears that AI will eat their lunch finally went from meme to market reality (Seeking Alpha, 2026-02-09). The sector’s weighting in major indices shrank, with high-flyers like ServiceNow and Salesforce leading the retreat. Meanwhile, the rest of the market is busy high-fiving itself: commodities are up +10.49% YTD, world stocks are up +5.44%, and the Dow is notching back-to-back record closes, led by, what else, Nvidia and Microsoft (Investors.com, 2026-02-09).

The AI narrative is everywhere. Profits are soaring, GDP is tilting ever further toward companies and their top employees, and the White House is promising 15% GDP growth if only the Fed would get with the program. But as Greg Ip points out in the WSJ, the spoils are being funneled to a select few, while the broader software sector is left holding the bag. AI is intensifying the winner-take-all dynamic, not democratizing it.

This isn’t just a US story. European and UK software names are seeing similar outflows, as global investors chase hard assets, energy, and the handful of tech giants with real AI scale. The rotation is brutal and indiscriminate. If you’re not Nvidia, Microsoft, or a direct AI infrastructure play, you’re yesterday’s news. The S&P and Nasdaq are rebounding, but under the hood, the breadth is rotting: fewer and fewer names are driving the rally, while the rest are quietly bleeding out.

The context here is critical. The last time we saw this kind of sector divergence was the post-dotcom era, when a handful of survivors (think Amazon, Google) went on to dominate the next decade while the rest faded into irrelevance. The difference now is the speed. AI is accelerating the cycle, compressing what used to take years into quarters. The market isn’t waiting around to see who adapts. It’s picking winners and losers in real time, and the software sector is on the wrong side of that trade, for now.

Look at the flows. ETF data shows outflows from broad software funds, while AI infrastructure and commodity ETFs are seeing record inflows. The market wants exposure to the rails and the shovels, not the apps. Even as tech stocks rebound ahead of earnings, the rally is narrow. The S&P’s new highs are being carried by fewer names than at any point since the 2020 pandemic melt-up. That’s not a sign of health. It’s a warning.

The real story is that AI is not lifting all boats. It’s a tide that’s swamping the weak and lifting only the strongest. The software sector is in the crosshairs, and unless you’re directly plugged into the AI profit machine, you’re getting left behind.

Strykr Watch

Technically, the software sector ETF is flirting with a major breakdown, having lost its 200-day moving average last week. Key support sits at the recent low, with resistance overhead at the 50-day MA. RSI is oversold, but there’s no sign of a reversal yet. Breadth metrics are deteriorating, with fewer than 30% of names above their 50-day. The Strykr Score for software sector volatility has jumped to 62/100, reflecting the sector’s sudden transition from market darling to pariah.

Watch for earnings season to act as a catalyst. If software names can deliver upside surprises, there’s room for a sharp relief rally. But if the numbers disappoint, the sector could see another leg down as passive flows accelerate the rotation. Keep an eye on ETF flows and options activity for early warning signs of a reversal, or a further flush.

The risk is that the software sector’s pain spreads to the broader market. If the narrow leadership falters, the S&P’s record highs could unravel quickly. The other risk is that AI regulation or a policy misstep derails the profit machine, taking the whole sector down with it.

For traders, the opportunity is in playing the dispersion. Long the AI infrastructure winners, short the software laggards. Pair trades and sector rotation strategies are the name of the game. The market is rewarding specificity, not broad exposure.

Strykr Take

The AI boom is real, but it’s not a rising tide for all tech. The software sector is getting re-rated in real time, and the winners are those with direct exposure to AI profits. Don’t chase the laggards hoping for a mean reversion. The market is telling you who it likes, and it’s not subtle.