Analysis
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2026 has been a breakout year for AI hardware, with demand driven mainly by data centers. Hardware here includes semiconductors, memory chips, server racks, switches, fiber optics, silicon packaging, liquid cooling systems, and all kinds of associated energy and industrial products and services. The market’s attention has swung toward this group of assets used to build the physical infrastructure behind new AI technology.
By contrast, software demand hasn’t seen that kind of surge because it isn’t physical infrastructure. Software is code, programs, computational rules, and solutions—an industry where you don’t see supply bottlenecks.
You’ve probably noticed it too: this year, when hardware stocks rally, software stocks often fall, and vice versa. That’s a broad trend, not a strict rule; occasionally they fall together in certain stretches. Specifically:
In the first half, hardware absolutely dominated; in July and August software clearly took the baton; and in September capital started rotating back into hardware.
Looking at sector ETFs, as of September 11, 2026:
In terms of cadence:
January–June: Hardware’s Main Rally
Capital flows mainly targeted GPUs, semiconductors, servers, networking, and AI infrastructure CapEx, while software clearly lagged.
July–August: Software’s First Real Handoff
SOXX pulled back noticeably while IGV rebounded quickly. Capital began shifting from “selling picks and shovels” to “who can turn AI into revenue,” and software saw a clear valuation repair and catch-up rally.
September: Hardware Regains the Upper Hand
The software rebound began to cool, and the market tilted back toward semiconductors and the infrastructure complex.