Software outruns semis as AI trade hands off from chips

Horizon Investments' asset-management team reaches for Mark Twain to argue that reports of software's death, like the writer's, were exaggerated. In a September 2 commentary on ETF Trends, the firm puts third-quarter software stocks up 20.8%, outgunning semiconductor stocks by 36.6% after a first half when AI's code-writing promise was supposed to demolish subscription software.

Horizon credits last week's bellwether earnings: Salesforce, Workday, CrowdStrike, and Intuit all delivered AI-fueled results, monetizing the technology rather than letting models write their way out of the subscription. The quarter's surge, in that telling, is the market repricing software from AI's victim to AI's customer.

Underneath sits Horizon's phase argument for the AI equity complex: first came the infrastructure spenders, then whoever actually gets paid, and the next phase belongs to companies that convert AI into productivity, margin expansion, and earnings growth. Chipmakers continue delivering, with Nvidia's blowout quarter landing last week, but sector-wide gains are harder to come by after the first half's run-up, while software, having absorbed the AI-fear discount during those same months, is early in the phase Horizon says now matters.

For ETF holders, the move answers a question we left open when Nvidia printed its record quarter: which ETF wrapper should own it. This quarter, the answer is software. But a sector fund is an average, and the average mixes the four names that just proved the AI revenue case with the rest of the sector still pleading it. Horizon's own hedge, that selectivity matters more than simply owning an index, names the core problem for every software product that rode the bounce.

Our read applies the hedge to what comes next: software funds held through the first half got paid for tolerance, but they keep the leadership only if the margin story broadens beyond the names that just reported. The tell arrives at the next round of SaaS earnings, when AI monetization has to show up in the operating line, not just the conference call. A software sector fund can hold that bet; it cannot make it selective for you.