After a major surge in chip stocks last year, investors are now shifting their focus to software companies in search of the next big AI opportunity.
Semiconductor shares, which saw massive growth during the AI boom, have struggled in 2025. Concerns over tariff-driven volatility and the emergence of cheaper AI models, particularly from China’s DeepSeek, have dampened investor enthusiasm. Analysts are now pointing to software as the future of AI’s growth, suggesting it represents a longer-term evolution.
David Russell, global head of market strategy at TradeStation, noted, “Investors are looking for the next three-to-five-year stories… those companies that are going to benefit from what Nvidia has already done.”
The Philadelphia SE Semiconductor index has fallen 5.6% this year, with Nvidia down nearly 13%. In contrast, software companies like Atlassian, CrowdStrike, Palantir, and Cognizant have seen significant gains, up between 7% and 19%.
As the focus shifts, Morgan Stanley’s Keith Weiss highlighted, “The second stage of the innovation cycle is when people start utilizing products… the software companies start getting paid.”
While investors question the future growth of chip stocks, some see the software sector as the next frontier in AI.
