Institutional investors are shifting large sums from software developers into semiconductor manufacturers.
According to a Goldman Sachs analysis of portfolios totaling $9 trillion, Wall Street has placed a decisive bet on companies that provide the physical infrastructure for artificial intelligence and has begun exiting businesses that AI threatens directly.
The market’s perception of technology has changed: AI euphoria no longer lifts the entire sector. Investors have moved to a sharp segmentation of winners and losers. Suppliers of enterprise software, HR solutions, and consumer services have fallen into the at‑risk category because investors fear that their business models will be devalued by algorithms. As a result, the sector benchmark for semiconductors (SOX) has jumped 72.3% year‑to‑date, while a software‑sector ETF has lost 11.1%.
The repositioning is the largest in a decade. By the start of the second quarter of 2026, mutual funds had cut software exposure to its lowest level since 2012. Hedge funds reduced software allocations to a 2019‑era low while increasing exposure to semiconductors to a record high. Notably, the aggressive buying of chipmakers is occurring despite oil‑driven inflation and broad sell‑offs in the bond market, even though rising rates historically hit an overvalued technology sector hardest.
At the stock level, Microsoft has been the principal casualty of the rotation: both categories of institutional investor actively trimmed net positions. Mutual funds also exited other names among the “Magnificent Seven,” redirecting liquidity into Intel and SiTime. Hedge funds acted differently: they increased stakes in Meta and Apple while simultaneously accumulating shares in key chip‑equipment suppliers—Lam Research, Applied Materials, and ASML.
