Data from Zhito Finance shows the Indian software sector is on track to record its largest one-month outperformance over global chip stocks in history, signaling investors are rotating out of artificial intelligence (AI) related stocks and moving into previously beaten-down information technology shares.
The NSE Nifty IT index, comprising ten Indian software exporters, has jumped 16% this month, while the MSCI World Semiconductors & Semiconductor Equipment index has dropped 13% in the same period. This divergence indicates investor fatigue with AI-driven chip stock rallies and a renewed interest in Indian IT services firms following a prolonged downturn.
This shift coincides with South Korea's KOSPI index falling more than 30% from its mid-June peak, a benchmark widely seen as a bellwether for global semiconductors and the AI sector. Jefferies upgraded India's IT sector to "neutral" last week, stating that the ebbing of the AI trade could trigger a cyclical rebound for the sector.
Indian Software Firms Outperform Global Chip Stocks
On Tuesday, shares of Infosys and Tata Consultancy Services led gains among Asian software companies, each rising more than 3%. Their counterparts in China and Australia also advanced.
Meanwhile, global chip stocks experienced a "Black Tuesday" due to doubts over returns on AI capital expenditure, escalating concerns about Nvidia's "circular financing," and rising competition from Chinese memory chip makers. South Korea's Kospi index plunged 10.76%, marking its largest single-day drop since 1998. SK Hynix fell 14%, and Samsung Electronics dropped 13.58%. Japan's Nikkei 225 closed down 4%, while Kioxia fell 18%.
Notably, the crowded Wall Street trade of "buying chips, selling software" is showing signs of unwinding. The iShares Expanded Tech-Software Sector ETF has edged up 0.3% this month, while the Philadelphia Semiconductor Index has plunged 19% over the same period.
Recently, bullish voices on software stocks from Wall Street have grown louder. Guggenheim raised its ratings on three software companies—Salesforce, ServiceNow, and Check Point—and stated that while AI may have disruptive potential, earlier predictions of the industry's demise were "pure nonsense." HSBC upgraded Adobe from "hold" to "buy," noting that "the market has overestimated the negative impact of AI design tools."
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