Software Stocks Plummet, Extending Historic Underperformance: What’s Next?
The software stock market is experiencing a significant downturn, further highlighting its long-term underperformance compared to the semiconductor sector. Recent analysis indicates that this trend is gaining momentum.
Current Market Performance of Software Stocks
As of February 3, 2026, software stocks are facing a selloff that underscores a historical trend of weaker performance. This decline raises questions about the future of software investments.
Comparison with Semiconductor Sector
Jessica Rabe, co-founder of DataTrek Research, has provided insight into this ongoing issue. She analyzed the 100-day trailing returns of two notable exchange-traded funds (ETFs): the VanEck Semiconductor ETF (SMH) and the iShares Expanded Tech-Software Sector ETF (IGV).
- VanEck Semiconductor ETF (SMH): Represents the semiconductor industry.
- iShares Expanded Tech-Software Sector ETF (IGV): Represents the software sector.
Rabe pointed out a concerning trend: chips are outperforming software by approximately five standard deviations. She classified this gap as “unprecedented,” indicating the severe divide between these two sectors.
Outlook for Software Stocks
This current performance demonstrates a significant challenge for software stocks, especially in light of their historical underperformance. Investors are left wondering what the future holds for this sector.
As the selloff continues, key decisions and strategic adjustments will be essential for software companies to regain competitiveness. The divergence from semiconductor stocks may necessitate a reevaluation of investment strategies within the tech landscape.
