Why Software ETFs Are Suddenly Beating Semiconductors — and How the Top Funds Compare

Software ETFs have suddenly outperformed semiconductor ETFs, a reversal from the year-to-date dominance of chips. The shift is tied to valuation and the maturing AI trade, as investors now bet on software companies that monetize AI. Software ETFs like IGV, SKYY, and WCLD have surged due to their focus on AI-driven enterprise products.

Semiconductor ETFs have cooled off after a strong first half, with some names trading at extreme forward multiples. While software ETFs are leading on a month-to-date basis, they still trail semiconductors on a year-to-date basis. Analysts suggest owning both sides of the trade, with IGV as the top software ETF and SMH as the leading semiconductor ETF.

However, investors should be cautious of rapid rotations and the difference between a one-month move and a permanent trend.