While shares of chip makers and cloud providers have been the winners so far this year, there are still opportunities for investors in software stocks, analysts say

With major tech companies holding firm on billion-dollar investments into artificial intelligence, the top-performing semiconductor stocks have outpaced those of the software-as-a-service sector so far this year.

But while the shares of chip makers and cloud providers have been the winners, analysts say there are still plenty of opportunities for investors in the stocks of software suppliers evolving with AI.

After earnings results from chip and cloud leaders such as NVIDIA, Broadcom and Oracle affirmed continued demand for AI hardware and infrastructure, Melius Research analyst Ben Reitzes said in a recent note that investors are "looking through tariffs and getting back to the 'picks & shovels'" used in forging AI infrastructure.

Tech giants are building out data centers, or what some call AI factories, which the Melius team sees as an "'SaaS-on-Demand' factory," Reitzes said. Those data centers will power AI agents, or software that can carry out tasks with little to no human guidance, being developed by companies such as Alphabet's Google and Meta Platforms, Inc.. Those agents stand to compete with products and services from SaaS leaders, Reitzes said, such as Adobe and Salesforce.com.

But AI agents are just "table stakes," Reitzes said, "and the real disruptors will use agents to access your data to help you save money on seats."

Reitzes compared the recent cumulative stock performances of three chip companies - Nvidia, Advanced Micro Devices and Broadcom - against those of three SaaS companies - Adobe, Salesforce and Workday. Since April 21, when the latest lows for chip and software sectors were hit, the "elite" AI chip companies have outperformed what Reitzes called the "AI 'Threatened' SaaS" companies through Tuesday.

Overall, the iShares Semiconductor ETF soared 43.7% from April 21 through Tuesday, while the iShares Expanded Tech-Software Sector ETF ran up 28.8%. Both beat by a wide margin the S&P 500's gain of 18.1% over the same period.

As long as the situation regarding tariffs and U.S. restrictions on semiconductor sales continues to evolve, Mizuho Securities desk-based analyst Jordan Klein acknowledged that it's difficult to make predictions about near-term stock movements.

But demand is ahead of supply at a lot of AI and cloud companies, Klein told MarketWatch, and there's a large need for compute capacity, memory and storage to build out AI systems.

He also noted that tech stocks are correlated to changes in earnings estimates. For AI and cloud companies, he said, "it's clear people believe revisions are going to be on the upside."

Dave Altavilla, principal analyst at HotTech Vision and Analytics, told MarketWatch that data-center buildout will eventually slow down, but "true visibility on this from a timing standpoint is spotty at best and not on the near-term horizon."

There's also likely to be more moments similar to the global chip-stock rout that occurred earlier this year after Chinese AI startup DeepSeek demonstrated that its AI models were competitive with those using more advanced chips.

However, both Klein and Altavilla said a situation like that will do little to hamper demand for chips and AI infrastructure.

Unless the tone starts to change on AI spending, "I don't think people are going to get off this trade," Klein said. "I think there's a lot more to go for some of these - their valuations aren't stretched, and the biggest factor will be their revisions."

Although the top chip stocks will likely continue to outpace the top SaaS stocks, the SaaS stocks shouldn't be considered losers. And over the long term, SaaS stocks could end up winning.

Brendan Connaughton, founder of Catalyst Private Wealth, told MarketWatch that investors can have both AI chip and SaaS stocks in a portfolio without feeling that one is at the cost of the other.

The primary growth driver for AI chips is for tools that software companies will end up using, Connaughton said. And the software names can depend on recurring revenue from customers that he doesn't see leaving as long as services continue to be enhanced by AI.

Altavilla shared a similar view, saying that while there will likely be some "erosion of SaaS supplier demand" in the near term as chatbots and agents take over similar tasks, SaaS companies that continue to evolve "will continue to see opportunity for growth as they adopt AI-assisted or agentic flows into their tool suites."

The relationship between AI chip and SaaS stocks "is fluid, and may see a month or quarter going one way and then reverse itself in the other way," Connaughton said. But in the long term, he sees "a migration toward the software names due to recurring revenue."