AI Chipmakers Leave Software in the Dust: Why Nvidia’s Outperformance Signals a New Tech Order

There’s a new pecking order in tech, and it’s not subtle. While the Magnificent Seven still dominate the headlines, the real action is happening under the hood. AI chipmakers are torching everything in their path, leaving software and SaaS names to pick up the pieces. Nvidia, AMD, and Broadcom are in full beast mode. Microsoft, Salesforce, and the rest of the software crowd? Not so much. The bifurcation is real, and it’s rewriting the rules for tech sector alpha.

Let’s get specific. The Tech ETF $XLK is stuck at $145.8, refusing to budge even as the AI hardware complex posts record numbers. Nvidia’s last earnings print was a masterclass in pricing power, with gross margins expanding even as CapEx ballooned. AMD is riding the AI server wave, and Broadcom is quietly cornering the custom silicon market. Meanwhile, software is getting punished for daring to invest in growth. Microsoft’s record-breaking CapEx was met with a yawn, and SaaS multiples are compressing faster than you can say “net retention.”

This is not just a rotation. It’s a regime change. Investors are demanding fundamental growth, not just AI “promise.” As Seeking Alpha notes, sentiment is now a fundamental metric. If you’re not showing real earnings leverage, you’re out. The ETF flows back this up, hardware is attracting fresh capital, while software ETFs are bleeding. The divergence is so stark that it’s starting to look structural, not cyclical.

The timeline is telling. Over the past month, Nvidia and AMD have outperformed the broader tech sector by double digits. The Magnificent Seven are still winning, but the leadership is narrowing. Software, once the darling of the bull market, is now the scapegoat for every macro scare. The CapEx arms race is real, but only the hardware players are being rewarded. Microsoft’s stumble after its latest earnings call was less about the numbers and more about the market’s new religion: show me the money, or get out of the way.

Context matters. The tech sector has always been prone to narrative shifts, but this one feels different. The AI hardware trade is not just about hype, it’s about actual demand. Data center buildouts are accelerating, and the supply chain is finally catching up. Meanwhile, software faces a wall of skepticism. Investors are no longer willing to pay up for growth at any price. The days of 20x sales multiples are over. If you’re not printing cash, you’re getting re-rated.

Cross-asset flows are reinforcing the trend. The broader equity market is choppy, with macro uncertainty keeping a lid on risk appetite. But AI chipmakers are defying gravity. The divergence between hardware and software is now the widest it’s been since the dot-com era. The ETF world is reflecting this, with $XLK flatlining even as the underlying components move in opposite directions. It’s a stock picker’s market, but only if you’re picking the right side of the trade.

The real story is that the AI trade is maturing. It’s no longer enough to talk about “potential.” Investors want to see operating leverage, margin expansion, and real cash flow. Nvidia is delivering. Microsoft is spending. The market has spoken.

Strykr Watch

Technically, $XLK is in a holding pattern at $145.8. The ETF is consolidating after a monster run, with support near $142 and resistance at $150. The RSI is neutral, reflecting the sector’s internal tug-of-war. Nvidia and AMD are trading near all-time highs, with momentum firmly on their side. Software names are languishing below key moving averages, with no clear bottom in sight. The technicals suggest more of the same, hardware outperformance, software underperformance.

If you’re trading the spread, the setup is clear. Long hardware, short software. The risk is that the trade is getting crowded, but the flows are still supportive. Watch the $142 level on $XLK, a break below could trigger a broader tech correction. On the upside, a move above $150 would signal renewed risk appetite.

The risk is that the market is overestimating the durability of hardware outperformance. If AI demand slows, or if supply chain issues re-emerge, the trade could unwind quickly. Software could stage a relief rally if earnings surprise to the upside, but for now, the burden of proof is on the bulls.

The opportunity is to ride the hardware wave while it lasts. Pair trades, long Nvidia, short Salesforce, are working. If you’re nimble, there’s alpha to be had. Just don’t overstay your welcome. The market is unforgiving to latecomers.

Strykr Take

This is a new tech order, and the hardware kings are wearing the crown. The AI trade is real, but it’s selective. If you’re not delivering, you’re getting left behind. For now, stay long the chipmakers, fade the software, and watch the flows. The regime has changed, and the market is rewarding execution, not just vision.