Tech ETF XLK Stalls as Hardware Outshines Software: Is the AI Rotation Getting Overcooked?

The market’s favorite tech ETF, XLK, is sitting at $141.96, flat as a pancake, while the rest of the sector is whipsawing between AI euphoria and software despair. If you blinked, you missed the latest episode of “Hardware Flies, Software Dies.” The story isn’t just about a sector rotation. It’s about the market’s collective conviction that AI will eat software’s lunch, then ask for dessert. But the price action in XLK is telling a more nuanced story, one that traders with a pulse on the tape can’t afford to ignore.

On February 3rd, software stocks were dragged into the alley and mugged for the third time this quarter. The catalyst? A fresh round of AI panic, with headlines like “Software stocks are getting slammed once again today as there appears to be no floor in the current thinking that AI will crush the software-as-a-service model.” Meanwhile, hardware names are getting all the love, riding the AI infrastructure wave. But here’s the punchline: XLK, the sector’s flagship ETF, is dead flat at $141.96. Not a twitch. Not a whimper. Just a market staring contest between bulls and bears, with neither side blinking.

Zoom out and the context gets weirder. The S&P 500 is coming off a month of choppy, risk-off trading, with tech leadership fragmenting. Nvidia and the semis are still the poster children of AI, but the rest of the sector is showing cracks. Software names are getting repriced lower, with Gartner warning that customers are “slowing and deferring everything possible” as they try to make sense of the shifting AI landscape. Meanwhile, ETF flows into XLK have stalled, and implied volatility is picking up. The market is pricing in a regime shift, but the ETF itself is stuck on pause.

The real story here is that the market’s AI obsession is creating a two-speed tech sector. Hardware is the new growth darling, while software is being treated like yesterday’s meme stock. But the flatline in XLK suggests that the rotation trade is running on fumes. If AI is going to be the tide that lifts all boats, why is the sector ETF not moving? The answer is that the market is struggling to price the second-order effects of AI disruption. Hardware gets the CapEx boost, but software’s revenue model is suddenly in question. The result is a sector that’s being repriced in real time, with the ETF caught in the crossfire.

Strykr Watch

Technically, XLK is boxed in. The $142 level is acting as a magnet, with support at $140 and resistance at $145. The 50-day moving average sits just below at $139.80, while the RSI is hovering around 52, neither overbought nor oversold. Options open interest is clustered around the $140 and $145 strikes, suggesting traders are bracing for a move but not betting big in either direction. The lack of momentum is palpable. If XLK breaks below $140, the next stop is $135, where the 100-day moving average lurks. On the upside, a convincing close above $145 could trigger a squeeze to $150, but the order book is thin up there. For now, the ETF is in purgatory, waiting for a catalyst.

The risk here is that the market’s AI narrative is overbaked. If hardware demand falters or software finds a new growth story, the rotation could unwind fast. A hawkish Fed or a macro shock could also trigger a broad tech selloff, dragging XLK below key support. On the other hand, if AI spending accelerates and software adapts, the ETF could catch a bid and break out of its range. The opportunity is in the volatility. Short-term traders can fade the range, while longer-term investors should watch for a decisive move above $145 or below $140 to signal the next trend.

Strykr Take

The market is telling you that the easy money in the AI rotation trade is gone. XLK’s flatline is a warning sign, not a green light. The real opportunity is in the volatility around the edges. If you’re nimble, you can trade the range. If you’re patient, you can wait for the breakout. But don’t get sucked into the AI hype cycle. The sector is being repriced, and the ETF is the canary in the coal mine. Strykr Pulse 52/100. Threat Level 3/5.

Date published: 2026-02-04 00:30 UTC