I've been waiting for this rotation for months, and on Wednesday it finally showed up in size: money moved out of chips and into software, and the scale of the swing caught even me off guard.
The Rundown
- Wall Street rotated out of semiconductors and into software after a major brokerage argued the "AI will kill software forever" narrative has gone too far.
- A surprise report that a leading social media company is exploring its own cloud computing business rattled both the big hyperscalers and the newer AI infrastructure upstarts.
- A well-known short seller extended his bearish AI bets further out on the calendar and added fresh names to his target list.
- Central bankers meeting in Portugal said inflation risks have eased but remain genuinely unsure how artificial intelligence will reshape growth and prices from here.
A Rotation, Not a Rout
The headline numbers undersell what happened. The Dow Jones (DJI | ???0.03%) closed essentially flat and the Nasdaq Composite (COMPX | ???0.66%) gave back nearly seven-tenths of a percent, both indices pausing after weeks of gains as traders positioned ahead of Thursday's US jobs report, the number the Fed actually watches.
Under that quiet surface, capital moved hard, out of chips and straight into software. I'd call that a healthy rebalancing rather than a warning sign, but the size of the individual moves tells you how crowded both trades had become.
From Chips to Software
Detailed view of computer code highlighting syntax in colors on a screen - Pexels.com
Guggenheim raised its rating on SALESFORCE INC (CRM | ???4.19%), SERVICENOW INC (NOW | ???6.57%) and CHECK POINT SOFTWARE TECH (CHKP | ???2.18%) to buy, and analyst John DiFucci didn't mince words about why.
Current valuations, he argued, price in software companies shrinking forever under AI competition from the likes of OpenAI and Anthropic. He called that scenario a hallucination. I'm inclined to agree with the framing even if I wouldn't go quite that far on every name in the group: pricing in permanent decline for an entire software industry is the kind of bet that only works if you're right about everything.
The other side of that trade got ugly. A group of chipmakers gave back a chunk of their recent run, led by LAM RESEARCH CORP (LRCX | ???9.71%) and ON SEMICONDUCTOR (ON | ???0.10%), with SKYWORKS SOLUTIONS INC (SWKS | ???2.76%), QUALCOMM INC (QCOM | ???1.55%) and TEXAS INSTRUMENTS INC (TXN | ???0.11%) all sliding alongside them. None of this was company-specific news. It was money leaving a sector that's had an extraordinary run and looking for somewhere less stretched to sit.
Meta's Cloud Gambit Rattles the Neoclouds
Hands holding smartphone with Meta Threads logo on screen, Meta branding in background - Pexels.com
The single biggest mover on the day had nothing to do with the chip-to-software story directly.
META PLATFORMS INC-CLASS A (META | ???8.81%) jumped nearly 9% after Bloomberg reported the company is working on its own cloud computing business, one that would sell not just AI model access but spare computing capacity from its enormous data centers.
That would put Meta in direct competition with AMAZON.COM INC (AMZN | ???1.41%) AWS, MICROSOFT CORP (MSFT | ???3.02%) Azure and ALPHABET INC-CL A (GOOGL | ???1.07%) Google Cloud, the three businesses that have made it relatively easy for other hyperscalers to turn AI capex into cash.
Meta has never had that luxury; its AI spending has had to justify itself through better ad targeting and product improvements alone. A cloud business would finally give it a second way to earn a return on the money.
Bloomberg Intelligence flagged that it could support EBITDA growth and free cash flow, easing the company's medium-term financing needs. Investors clearly liked the idea. Whether Meta can actually pull off a cloud business at scale, competing against three companies with a decade-plus head start, is a different question entirely, and one the stock's 9% pop doesn't really answer.
The pain showed up elsewhere.
COREWEAVE INC-CL A (CRWV | ???13.92%) and NEBIUS GROUP NV (NBIS | ???17.01%), the newer "neocloud" players that rent out AI computing capacity, dropped hard on fears that a deep-pocketed new entrant would squeeze margins in a business that's already financed with a lot of debt.
ORACLE CORP (ORCL | ???2.76%) slipped too, for similar reasons on a smaller scale. Established names like Microsoft, Amazon and Alphabet, by contrast, barely flinched. That gap is the whole story in miniature: the market is fine with more AI infrastructure supply, as long as it's coming from a balance sheet that can absorb the hit.
Michael Burry Doubles Down
Michael Burry, the investor who built his reputation shorting the 2008 housing market, isn't backing off his AI skepticism. His latest Substack update shows he's rolled his bearish bets out to March 2027, trading shorter-dated puts for longer-dated ones on TESLA INC (TSLA | ???1.12%), CATERPILLAR INC (CAT | ???6.90%), NVIDIA CORP (NVDA | ???1.25%) and APPLIED MATERIALS INC (AMAT | ???9.97%), and he renewed his short on the iShares Semiconductor ETF (SOXX), which holds most of the names above plus AMD, Broadcom and Intel.
The longer expiry is the interesting detail here. Swapping near-term puts for contracts eighteen months out tells you Burry still expects a correction, just not on any particular week's schedule.
He described the semiconductor ETF as "overvaluation in its purest form," pointing to a level far above its 200-day moving average that he says echoes the dot-com bubble. I've learned not to dismiss Burry outright, and I've also learned not to trade on his timing. Being early and being wrong look identical for a long stretch of the chart.
Central Bankers Grapple With AI's Uncertain Toll
aerial shot of the colorful Pena Palace nestled in the lush hills of Sintra, Portugal - Pexels.com
The real newsmaker of the day, in terms of long-term relevance, might have been a panel discussion rather than a stock move. At the European Central Bank's annual gathering in Sintra, Portugal, the heads of the ECB, the Fed, the Bank of England and the Bank of Canada shared a stage, and the two topics that dominated were inflation and AI.
ECB President Christine Lagarde said inflation risks have become more balanced recently, helped along by a sharp drop in oil prices; Brent crude has fallen roughly 40% from its April peak near $118 a barrel to around $71 now. She was quick to add that the ECB isn't taking its eye off the ball: "We're not going to let the genie out of the bottle."
Bank of England Governor Andrew Bailey said his committee held rates steady because it sees the UK economy weakening, even as falling energy prices, felt with a lag domestically because of price caps, argue the other way. He ruled out near-term rate cuts regardless. Bank of Canada's Tiff Macklem described a trickier balancing act at home, where excess supply relative to demand pulls toward a cut just as elevated energy costs pull toward a hike.
New Fed Chair Kevin Warsh, who also joined the panel, said inflation risk has eased since he took over a few weeks ago but declined to say whether a rate hike is on the table at the next meeting. He did make clear he won't tolerate inflation drifting persistently above the Fed's 2% target.
On AI specifically, the tone was refreshingly honest: nobody claimed to have this figured out. Bailey said the Bank of England is still in an "experimentation phase" with the technology itself, and that while companies everywhere say they're using AI, it isn't yet visible in the economic data. Macklem backed that up, noting that only 10 to 15% of Canadian firms surveyed say AI has actually changed how they operate.
Warsh struck a more bullish long-term note, arguing we're only in the first or second phase of what he called a genuine paradigm shift, and predicting that surveys dismissing AI's importance today will read very differently in six months. I lean toward Warsh's read on the multi-year arc, though I'd want to see it show up in productivity data before I'd bet the portfolio on it.
Oil Slips as Diplomacy Continues in Qatar
Bright red industrial oil barrels stacked outdoors in daylight, showcasing vivid color and industrial theme - Pexels.com
Crude extended its decline as US and Iranian negotiators sat down for a second day of talks in Qatar, working toward reopening the Strait of Hormuz to normal tanker traffic. West Texas Intermediate fell 1.3% to $68.58 a barrel, while Brent slipped 1.9% to $71.57.
Oil just wrapped its steepest quarterly decline since early 2020, unwinding the spike that followed the earlier closure of the strait during the US-Iran conflict. The WTI-Brent spread, which had blown out to roughly $15 a barrel in mid-March as the standoff peaked, has narrowed back to around $3, a reasonable proxy for how much the market believes the worst has passed.
US crude inventories fell another 3.8 million barrels last week, even as domestic production hit a record 13.9 million barrels per day in April, according to the EIA. Darren Dohme of The Fuel Hedge pointed out that while more Middle East crude is expected to reach the market, refined product supply remains tight because refining capacity, not crude availability, is now the bottleneck, something reflected in wider refining margins.
Elsewhere on the Tape
A handful of single-stock stories rounded out the session.
COINBASE GLOBAL INC -CLASS A (COIN | ???8.93%) rallied alongside a broader bid for bitcoin-adjacent names. WALMART INC (WMT | ???3.92%) gave back ground along with the rest of the value-retail complex.
ALCOA CORP (AA | ???8.94%) fell after announcing a deal to acquire Australia's South32 for up to $5.6 billion, even as South32 itself jumped 9.7% in Sydney trading, a fairly typical acquirer-pays, target-gains reaction. FMC CORP (FMC | ???4.78%) gave back an early premarket pop that followed news of a strategic investment from Belgium's Tessenderlo.
NIKE INC -CL B (NKE | ???4.90%) rose despite confirming that weak sales in China are continuing, a reminder that expectations there have already fallen so far that merely "still weak" can read as a relief.
GENERAL MOTORS CO (GM | ???2.02%) slipped after reporting a 4% drop in second-quarter sales, though management noted that was actually an improvement on the first quarter's decline.
Bottom Line
Strip away the day-to-day noise and Wednesday told a fairly coherent story: a chip sector that ran too far, too fast is giving some of it back, software is getting a second look now that "AI kills software" has started to sound overdone, and Meta just found a genuinely new way to defend its AI spending that nobody was pricing in a week ago.
Layer on a short seller doubling down with a longer time horizon and central bankers openly admitting they don't yet know how AI will show up in the data, and you get a market that's more uncertain about the next twelve months than the last twelve suggested.
I'll be watching Thursday's jobs report for the next real signal, but for now, I'd rather own the software names catching a valuation reset than the chip names still working off an overcrowded trade.
ChartMill Market Desk - Kristoff
With regard to the stocks discussed in the article above; the author owns individual shares in Microsoft and Nvidia.
This daily update is prepared by ChartMill for informational purposes only and does not constitute investment advice. Always do your own due diligence before making investment decisions.
Read full article here »
View the Zacks #1 Rank List
Meta Declares War on the Cloud Giants, and Chip Stocks Pay the Price
I've been waiting for this rotation for months, and on Wednesday it finally showed up in size: money moved out of chips and into software, and the scale of the swing caught even me off guard.
The Rundown
A Rotation, Not a Rout
The headline numbers undersell what happened. The Dow Jones (DJI | ???0.03%) closed essentially flat and the Nasdaq Composite (COMPX | ???0.66%) gave back nearly seven-tenths of a percent, both indices pausing after weeks of gains as traders positioned ahead of Thursday's US jobs report, the number the Fed actually watches.
Under that quiet surface, capital moved hard, out of chips and straight into software. I'd call that a healthy rebalancing rather than a warning sign, but the size of the individual moves tells you how crowded both trades had become.
From Chips to Software
Detailed view of computer code highlighting syntax in colors on a screen - Pexels.com
Guggenheim raised its rating on SALESFORCE INC (CRM | ???4.19%), SERVICENOW INC (NOW | ???6.57%) and CHECK POINT SOFTWARE TECH (CHKP | ???2.18%) to buy, and analyst John DiFucci didn't mince words about why.
Current valuations, he argued, price in software companies shrinking forever under AI competition from the likes of OpenAI and Anthropic. He called that scenario a hallucination. I'm inclined to agree with the framing even if I wouldn't go quite that far on every name in the group: pricing in permanent decline for an entire software industry is the kind of bet that only works if you're right about everything.
The other side of that trade got ugly. A group of chipmakers gave back a chunk of their recent run, led by LAM RESEARCH CORP (LRCX | ???9.71%) and ON SEMICONDUCTOR (ON | ???0.10%), with SKYWORKS SOLUTIONS INC (SWKS | ???2.76%), QUALCOMM INC (QCOM | ???1.55%) and TEXAS INSTRUMENTS INC (TXN | ???0.11%) all sliding alongside them. None of this was company-specific news. It was money leaving a sector that's had an extraordinary run and looking for somewhere less stretched to sit.
Meta's Cloud Gambit Rattles the Neoclouds
Hands holding smartphone with Meta Threads logo on screen, Meta branding in background - Pexels.com
The single biggest mover on the day had nothing to do with the chip-to-software story directly.
META PLATFORMS INC-CLASS A (META | ???8.81%) jumped nearly 9% after Bloomberg reported the company is working on its own cloud computing business, one that would sell not just AI model access but spare computing capacity from its enormous data centers.
That would put Meta in direct competition with AMAZON.COM INC (AMZN | ???1.41%) AWS, MICROSOFT CORP (MSFT | ???3.02%) Azure and ALPHABET INC-CL A (GOOGL | ???1.07%) Google Cloud, the three businesses that have made it relatively easy for other hyperscalers to turn AI capex into cash.
Meta has never had that luxury; its AI spending has had to justify itself through better ad targeting and product improvements alone. A cloud business would finally give it a second way to earn a return on the money.
Bloomberg Intelligence flagged that it could support EBITDA growth and free cash flow, easing the company's medium-term financing needs. Investors clearly liked the idea. Whether Meta can actually pull off a cloud business at scale, competing against three companies with a decade-plus head start, is a different question entirely, and one the stock's 9% pop doesn't really answer.
The pain showed up elsewhere.
COREWEAVE INC-CL A (CRWV | ???13.92%) and NEBIUS GROUP NV (NBIS | ???17.01%), the newer "neocloud" players that rent out AI computing capacity, dropped hard on fears that a deep-pocketed new entrant would squeeze margins in a business that's already financed with a lot of debt.
ORACLE CORP (ORCL | ???2.76%) slipped too, for similar reasons on a smaller scale. Established names like Microsoft, Amazon and Alphabet, by contrast, barely flinched. That gap is the whole story in miniature: the market is fine with more AI infrastructure supply, as long as it's coming from a balance sheet that can absorb the hit.
Michael Burry Doubles Down
Michael Burry, the investor who built his reputation shorting the 2008 housing market, isn't backing off his AI skepticism. His latest Substack update shows he's rolled his bearish bets out to March 2027, trading shorter-dated puts for longer-dated ones on TESLA INC (TSLA | ???1.12%), CATERPILLAR INC (CAT | ???6.90%), NVIDIA CORP (NVDA | ???1.25%) and APPLIED MATERIALS INC (AMAT | ???9.97%), and he renewed his short on the iShares Semiconductor ETF (SOXX), which holds most of the names above plus AMD, Broadcom and Intel.
The longer expiry is the interesting detail here. Swapping near-term puts for contracts eighteen months out tells you Burry still expects a correction, just not on any particular week's schedule.
He described the semiconductor ETF as "overvaluation in its purest form," pointing to a level far above its 200-day moving average that he says echoes the dot-com bubble. I've learned not to dismiss Burry outright, and I've also learned not to trade on his timing. Being early and being wrong look identical for a long stretch of the chart.
Central Bankers Grapple With AI's Uncertain Toll
aerial shot of the colorful Pena Palace nestled in the lush hills of Sintra, Portugal - Pexels.com
The real newsmaker of the day, in terms of long-term relevance, might have been a panel discussion rather than a stock move. At the European Central Bank's annual gathering in Sintra, Portugal, the heads of the ECB, the Fed, the Bank of England and the Bank of Canada shared a stage, and the two topics that dominated were inflation and AI.
ECB President Christine Lagarde said inflation risks have become more balanced recently, helped along by a sharp drop in oil prices; Brent crude has fallen roughly 40% from its April peak near $118 a barrel to around $71 now. She was quick to add that the ECB isn't taking its eye off the ball: "We're not going to let the genie out of the bottle."
Bank of England Governor Andrew Bailey said his committee held rates steady because it sees the UK economy weakening, even as falling energy prices, felt with a lag domestically because of price caps, argue the other way. He ruled out near-term rate cuts regardless. Bank of Canada's Tiff Macklem described a trickier balancing act at home, where excess supply relative to demand pulls toward a cut just as elevated energy costs pull toward a hike.
New Fed Chair Kevin Warsh, who also joined the panel, said inflation risk has eased since he took over a few weeks ago but declined to say whether a rate hike is on the table at the next meeting. He did make clear he won't tolerate inflation drifting persistently above the Fed's 2% target.
On AI specifically, the tone was refreshingly honest: nobody claimed to have this figured out. Bailey said the Bank of England is still in an "experimentation phase" with the technology itself, and that while companies everywhere say they're using AI, it isn't yet visible in the economic data. Macklem backed that up, noting that only 10 to 15% of Canadian firms surveyed say AI has actually changed how they operate.
Warsh struck a more bullish long-term note, arguing we're only in the first or second phase of what he called a genuine paradigm shift, and predicting that surveys dismissing AI's importance today will read very differently in six months. I lean toward Warsh's read on the multi-year arc, though I'd want to see it show up in productivity data before I'd bet the portfolio on it.
Oil Slips as Diplomacy Continues in Qatar
Bright red industrial oil barrels stacked outdoors in daylight, showcasing vivid color and industrial theme - Pexels.com
Crude extended its decline as US and Iranian negotiators sat down for a second day of talks in Qatar, working toward reopening the Strait of Hormuz to normal tanker traffic. West Texas Intermediate fell 1.3% to $68.58 a barrel, while Brent slipped 1.9% to $71.57.
Oil just wrapped its steepest quarterly decline since early 2020, unwinding the spike that followed the earlier closure of the strait during the US-Iran conflict. The WTI-Brent spread, which had blown out to roughly $15 a barrel in mid-March as the standoff peaked, has narrowed back to around $3, a reasonable proxy for how much the market believes the worst has passed.
US crude inventories fell another 3.8 million barrels last week, even as domestic production hit a record 13.9 million barrels per day in April, according to the EIA. Darren Dohme of The Fuel Hedge pointed out that while more Middle East crude is expected to reach the market, refined product supply remains tight because refining capacity, not crude availability, is now the bottleneck, something reflected in wider refining margins.
Elsewhere on the Tape
A handful of single-stock stories rounded out the session.
COINBASE GLOBAL INC -CLASS A (COIN | ???8.93%) rallied alongside a broader bid for bitcoin-adjacent names. WALMART INC (WMT | ???3.92%) gave back ground along with the rest of the value-retail complex.
ALCOA CORP (AA | ???8.94%) fell after announcing a deal to acquire Australia's South32 for up to $5.6 billion, even as South32 itself jumped 9.7% in Sydney trading, a fairly typical acquirer-pays, target-gains reaction. FMC CORP (FMC | ???4.78%) gave back an early premarket pop that followed news of a strategic investment from Belgium's Tessenderlo.
NIKE INC -CL B (NKE | ???4.90%) rose despite confirming that weak sales in China are continuing, a reminder that expectations there have already fallen so far that merely "still weak" can read as a relief.
GENERAL MOTORS CO (GM | ???2.02%) slipped after reporting a 4% drop in second-quarter sales, though management noted that was actually an improvement on the first quarter's decline.
Bottom Line
Strip away the day-to-day noise and Wednesday told a fairly coherent story: a chip sector that ran too far, too fast is giving some of it back, software is getting a second look now that "AI kills software" has started to sound overdone, and Meta just found a genuinely new way to defend its AI spending that nobody was pricing in a week ago.
Layer on a short seller doubling down with a longer time horizon and central bankers openly admitting they don't yet know how AI will show up in the data, and you get a market that's more uncertain about the next twelve months than the last twelve suggested.
I'll be watching Thursday's jobs report for the next real signal, but for now, I'd rather own the software names catching a valuation reset than the chip names still working off an overcrowded trade.
ChartMill Market Desk - Kristoff
With regard to the stocks discussed in the article above; the author owns individual shares in Microsoft and Nvidia.
This daily update is prepared by ChartMill for informational purposes only and does not constitute investment advice. Always do your own due diligence before making investment decisions.
Read full article here »