It may as well be an adage at this point that when chip and networking stocks go up, software must come down.

That dynamic was playing out early Wednesday, with Palantir and Microsoft among the S&P 500's worst performers as the AI trade mounted a comeback.

Palantir slid 2.2% and Microsoft dipped 1.8%. Salesforce, ServiceNow, and Workday were among the other software stocks trading in the red.

The moves came as shares of chip and optical networking companies rallied, following a strong batch of earnings reports that signaled to the market that demand for AI remains robust.

Software and chip stocks tend to move in different directions -- and that's it's all tied to how investors view the two industries in relation to AI.

Chips are needed to power large-language models, while the boom in construction of data centers has also driven up demand for optical cables and other networking products.

At the same time, AI is expected to significantly disrupt software because the rapidly development of so-called vibe-coding tools is expected to make some existing products obsolete.

The dynamic works both ways, though. Palantir and Microsoft have surged 35% and 24%, respectively, over the past three months, benefiting from concerns that chip stocks have become overvalued.