MW Software stocks bounce as Nvidia shares falter. Is a new rotation trade in store?

By Christine Ji

While Nvidia's latest results were deemed 'phenomenal,' a massive shift in trading flows has sent software stocks rising as investors ditch AI chip names

Shares of software companies like Salesforce and Workday led a broad rally on Thursday as investors rotated out of highflying semiconductor names.

Could a long-awaited software revival finally be materializing?

On Thursday, the market saw one of the largest shifts out of chip stocks and into software names in recent history. Wednesday's beat-and-raise performance from the king of the artificial-intelligence trade, Nvidia (NVDA), didn't deliver the momentum needed to send chip stocks higher.

The iShares Expanded Tech-Software Sector exchange-traded fund IGV outperformed the iShares Semiconductor ETF SOXX by as much as 5.6 percentage points Thursday, which would be the largest one-day outperformance since Jan. 27, 2025, when DeepSeek wreaked havoc across markets.

That also would be the second-largest gap in the last decade, according to Dow Jones Market Data, although software stocks have since pared their gains.

Read: Why Nvidia's stock is falling despite a historic earnings beat

Still, the reversal for the chip sector could suggest an unwinding of one of the most crowded AI trades, as investors have dumped software stocks in recent months to buy into AI infrastructure names. SOXX has rallied nearly 13% year to date, while IGV has fallen by more than 20% over the same period.

Despite what Jefferies trading desk analyst Jeffrey Favuzza called "phenomenal" results on Wednesday, Nvidia's stock was down 4.4% on Thursday. As of early afternoon Thursday, no names in SOXX were in the green for the day.

The software rally has been led by beaten-down names that had struggled to find their footing heading into Thursday. Shares of Salesforce (CRM) are up 2.7%, even after the company announced in-line fourth-quarter results on Wednesday. Salesforce also announced a record $50 billion stock-buyback authorization to signal confidence in the stock amid relentless software selling.

See more: Salesforce's record $50 billion stock-buyback plan is proving controversial on Wall Street

"This move in software feels a bit more real than what we've seen the last several days," Favuzza noted on Thursday. Hedge funds and "long-only" investors seem to be finally joining the buying action. According to Favuzza, for every $1 of semiconductor stocks hedge funds wanted to buy, they wanted to sell $3.50. This shows a high urgency to exit the AI chip trade, even after Nvidia's strong earnings.

Still, some software stocks remain big losers. Shares of Zoom Communications (ZM) were down over 13% Thursday after fourth-quarter earnings showed declining cash flow and earnings per share.

Favuzza also noted that shares of Adobe $(ADBE)$ still "can't catch a bid even with the entire software complex higher." The stock was trading flat on Thursday.

-Christine Ji

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February 26, 2026 13:54 ET (18:54 GMT)

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