IGV ETF captures the software slice of AI as attention shifts from GPU clusters to enterprise apps. Earnings season will test the rotation hypothesis.
The AI investment narrative is showing an early rotation. After a year dominated by semiconductor infrastructure players–NVIDIA, AMD, and Broadcom–attention is tilting toward the software layer that delivers AI applications to end users. The question is whether this shift is a tactical pause or the start of a longer leadership change.
The logic is straightforward. The first phase of AI build-out required massive GPU clusters, data centers, and networking gear. That demand lifted semiconductor stocks to extreme valuations and crowded positioning. Now that those clusters exist, the next bottleneck is the software stack–the platforms, tools, and applications that turn raw compute into usable products.
IGV (the iShares Expanded Tech-Software Sector ETF) captures this slice of the market. Its holdings include names such as Microsoft, Salesforce, Adobe, and ServiceNow–companies whose revenue is increasingly tied to AI copilots, generative features, and enterprise automation. Unlike the semiconductor group, where forward multiples have been stretched for quarters, software valuations are off their 2021 peaks, and earnings revisions are only now beginning to reflect AI tailwinds.
IGV holds about 140 stocks, with a heavy tilt toward large-cap platform companies. Microsoft alone accounts for over 15% of the fund. The ETF's composition benefits from enterprise AI adoption without the single-stock risk of betting on one chipmaker. For traders expressing a macro view that "AI is moving downstream," IGV offers a cleaner vehicle than picking individual software names in a still-fragmented competitive landscape.
The rotation is visible in relative strength. Over the past month, IGV has held up better than the SOX semiconductor index, even as semiconductor names pulled back after earnings. That divergence suggests capital is being rotated, not just sold indiscriminately. Traders should track the IGV-to-SOX ratio; a sustained rise would confirm the shift.
Semiconductor stocks rallied on a clear catalyst: GPU shortages and hyperscaler capex guidance. Software lacks that immediate urgency. The catalyst path is shifting to product-level monetization. Microsoft's Copilot, Adobe's Firefly, and Salesforce's Einstein GPT are early-stage revenue drivers. The next catalyst is earnings season, where software companies will report how much of their 2025 pipeline is tied to AI subscription upsells.
If those numbers confirm a tipping point, software could enter a sustained re-rating similar to what semis experienced in 2023. If they disappoint, the rotation will fade, and capital flows back to hardware. The key metric to watch is the ratio of IGV to the NVIDIA profile stock price: a rising ratio would confirm that application-layer bets are outperforming infrastructure bets.
For investors using broad-based stock market analysis, the sector rotation argument has structural logic. The AI trade is moving from capex to opex–from buying chips to buying subscriptions. That tends to favor software companies with recurring revenue, high gross margins, and low incremental cost of delivery.
The rotation thesis will be tested in the coming weeks as major software companies report quarterly results. If management teams cite AI-driven acceleration in new bookings and average contract values, the shift will gain institutional sponsorship. If the tone is cautious, semis retain their pole position.
Traders watching IGV should also track the ETF's volume patterns. A rise in daily turnover alongside a breakout above its 50-day moving average would confirm participation beyond passive flows. Until then, the rotation remains a hypothesis–one with enough supporting logic to merit a watchlist entry. For those exploring execution, the leading best stock brokers offer commission-free trading on IGV, making the rotation trade cost-effective to size incrementally.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.