Software development stocks staged a strong rebound today (June 12).

Shanghai Suochen Information Technology Co.,Ltd. surged by the 20% daily limit, Mcdtek Co.,LTD rose by the 10% limit, Wins Soft gained over 12%, with Transwarp Technology Co., Ltd. and Zhongwang Software Co.,Ltd. following suit significantly higher.

The Huabao Software Development ETF (159036), which focuses on the forefront of AI applications, saw its intraday price increase by up to 2.76% and is currently up 2.23%.

Key Developments and Market Catalysts

On the news front, NVIDIA announced collaborations with companies including SK Hynix and LG, propelling "Physical AI" into the spotlight.

The announcement on June 8 detailed a series of partnerships not only to secure memory supply for computing hardware but also deep integration in areas like joint technology R&D, modification of existing production lines, and co-building the AI ecosystem, aiming to accelerate the implementation of Physical AI applications.

From a policy perspective, the National Data Administration convened a symposium on "Improving Data-Related Regulations to Empower AI Innovation and Development".

The meeting concluded that it is essential to balance data development and security, maintain goal-oriented and problem-solving approaches, further advance the market-oriented allocation reform of data elements, better meet the needs of AI development, further unleash the value of data elements, and achieve new progress in empowering AI innovation through data elements.

Market Outlook and Sector Analysis

Looking ahead, Shenwan Hongyuan Securities believes the software sector could see an inflection point in the second half of 2026, with a reversal in the AI application narrative and industry profits entering a phase of accelerated recovery.

While AI hardware led gains in the first half of the year, the industry's focus is expected to shift to software applications in the latter half, with simultaneous improvements in supply and demand across models, computing power, and application ends.

Valuation Perspective

As of June 11, the price-to-earnings ratio (PE TTM) of the underlying index (Software Development Index) for the Huabao Software Development ETF (159036) was 178.82 times, sitting at the 23.78th percentile since its listing, indicating relatively high valuation appeal and a margin of safety.

The End of Hardware, The Dawn of Software?

Throughout historical technological revolutions, profits have consistently flowed from hardware to applications. The culmination of hardware cycles may herald a spring for software.

Earlier this year, the sector was impacted by narratives around "large models consuming software," leading to significant valuation discounts for AI application stocks compared to computing power and model providers.

Consequently, the software sector has become a segment with relatively "lower water levels" within the AI industry chain, offering higher valuation appeal and safety margins.

Coupled with the dual drivers of AI empowerment and domestic IT system innovation, the software development sector is poised for potential growth.

While the software industry is in an overall upward cycle, pinpointing which specific sub-sector or individual stock will outperform is challenging.

Instead of betting on a single niche, investors might consider the Huabao Software Development ETF (159036), which tracks the underlying Software Development Index covering the entire industry with 112 constituent stocks, providing a more comprehensive and balanced exposure to capture the sector's beta returns.

The underlying index of the Huabao Software Development ETF (159036) encompasses various popular themes.

As of the end of May, the weightings for AI applications, cloud computing, domestic IT system innovation industry, fintech, cybersecurity, and HarmonyOS ecosystem concept stocks were approximately 46.58%, 43.50%, 42.36%, 29.90%, 15.72%, and 14.29%, respectively.

ETF Fee Information

Intraday trading fees are subject to the actual charges by securities firms. When subscribing for or redeeming fund units, subscription/redemption agents may charge a commission of up to 0.3%. The Huabao Software Development ETF does not charge a sales service fee.

Risk Disclosure

The Huabao Software Development ETF passively tracks the CSI All Share Software Development Index. The index's base date is December 31, 2021, and its release date is March 29, 2023. The fund is issued and managed by Huabao Fund. Distribution agents do not bear responsibility for the product's investment performance or redemption. Investors should carefully read the Fund Contract, Prospectus, Fund Product Summary, and other legal documents to understand the fund's risk-return characteristics and choose a product suitable for their own risk tolerance. The fund manager assesses this fund's risk level as R3-Medium Risk, suitable for Balanced (C3) and above investors. Suitability matching opinions are subject to the sales institution. Sales institutions (including the fund manager's direct sales channels and other distributors) evaluate the fund's risk according to relevant laws and regulations. Investors should pay attention to the suitability opinions provided by sales institutions and rely on their matching results. Suitability opinions may vary among sales institutions, and a sales institution's risk rating for the fund product cannot be lower than the rating given by the fund manager. The description of the fund's risk-return characteristics in the Fund Contract and its risk level rating may differ due to different considerations. Investors should understand the fund's risk-return profile and choose fund products prudently based on their investment objectives, horizon, experience, and risk tolerance, bearing the associated risks themselves. The China Securities Regulatory Commission's registration of this fund does not indicate a substantive judgment or guarantee of its investment value, market prospects, or returns. The fund's past performance and net asset value do not predict its future performance. The performance of other funds managed by the fund manager does not guarantee this fund's performance. Funds carry risks; investment requires caution.