Software vs. Semiconductors: A Market Shift?

Is a Rotation Beginning from Semiconductors ($SOXX) to Software ($IGV)?

A Tale of Two Cities: Software vs. Semiconductors

December 17, 2025

Disclaimer: This is not investment advice, but a market observation worth noting.

Technology index performance, Nasdaq 100, has been driven largely by AI-fueled semiconductor expansion. Over the past five years, the semiconductor ETF (SOXX) has outperformed the software ETF (IGV) by nearly 87%—a stark divergence. The outperformance is evident over the 1-year, 3-year, and 5-year periods, with the exception of the last week.

This outperformance has been led by the AI semiconductor complex, particularly Nvidia, amid widespread concerns about software's viability. However, Tilden's view is that it's premature to declare software dead, especially as SaaS companies focusing on industry verticals may ultimately prevail.

Comparing Returns of Technology ETFs - Semiconductors, Software and Technology

Tilden's portfolio is approximately 90% invested in small- and mid-cap software stocks and is tracking close to Nasdaq returns year-to-date.

Over the past week, a notable shift has emerged as the rotation out of semiconductors has picked up steam. This may reflect concerns about overbuilding— Brad Conger, CIO at Hirtle, Callaghan & Co., argues that not all LLM models are likely to succeed, which could lead to excess data center capacity (AI Data Center: A Bubble?).

As semiconductors are inherently cyclical, the market may rotate into software stocks. Whether this trend continues remains to be seen.