A sharp divide is emerging within the technology sector, and ETFs are making that split impossible to ignore.
The “buy hardware, sell software” trade has regained momentum, with AI infrastructure plays surging while software stocks lag. The divergence was evident in Thursday’s and Friday’s sessions, where the iShares Expanded Tech-Software Sector ETF (BATS:IGV) fell more than 4% on Thursday, and almost 3% on Friday at the time of publishing, reflecting broad-based weakness across enterprise software names. The fund recorded $185 million in outflows on Wednesday, per Etf.com.
Software ETFs Take The Hit
The decline in IGV underscores how institutional investors are repositioning away from software exposure. Major holdings like Salesforce Inc (NYSE:CRM) and Adobe Inc (NASDAQ:ADBE) dropped sharply, dragging the ETF lower. Other major tech giants like Microsoft Corp (NASDAQ:MSFT) are also trading lower, putting pressure on the fund.
Because IGV serves as a key vehicle for sector-wide bets, the selloff has spilled over into adjacent segments. Even cybersecurity firms such as CrowdStrike Holdings Inc (NASDAQ:CRWD), typically seen as defensive growth plays, have been caught in the downdraft, eroding more than 5% of share value on Friday.
This broad-based weakness suggests the shift is less about individual fundamentals and more about sector-level capital rotation.
Hardware And AI ETFs Gain Favor
On the other side of the trade, hardware and semiconductor-linked exposure is attracting interest as investors double down on AI infrastructure.
Chipmakers like Marvell Technology Inc (NASDAQ:MRVL), which gained 8% on Friday, and Intel Corp (NASDAQ:INTC) posted strong gains, while data-center supply chain players such as Corning Inc (NYSE:GLW) also moved higher.
This trend is reflected in semiconductor-focused ETFs such as the VanEck Semiconductor ETF (NASDAQ:SMH) and the iShares Semiconductor ETF (NASDAQ:SOXX), which have outperformed broader tech benchmarks in recent sessions as AI spending expectations continue to rise.
A Structural Shift?
The rotation highlights a deeper shift in how markets are pricing the AI boom. Rather than rewarding software applications, investors are increasingly favoring the “picks and shovels” of AI, such as chips, networking gear, and data center infrastructure.
With institutional money using ETFs like IGV to express bearish views on software while rotating into semiconductor funds, the divergence could persist.
Photo: Shutterstock
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