To The Moon

The AI trade may be entering a new phase. While semiconductor stocks struggled last week, cybersecurity and enterprise software stocks staged a strong rebound. The shift suggests investors are becoming more selective about where they expect AI to generate the next wave of returns.

According to Dow Jones, CrowdStrike (CRWD) and Palo Alto Networks (PANW) each gained more than 10% during a volatile week. Meanwhile, the iShares Expanded Tech-Software Sector ETF rose 6%, and the First Trust NASDAQ Cybersecurity ETF gained 7%. The iShares Semiconductor ETF fell 3%.

This is more than a simple sector rotation. It reflects changing expectations about how AI will reshape the technology industry.

🔐 1. Cybersecurity could become an AI beneficiary

As companies deploy increasingly capable AI agents, security risks are growing alongside the opportunities. Unauthorised access, data breaches and agents taking actions beyond their intended permissions are becoming important concerns.

Businesses may need to invest more in protecting their networks, identities and sensitive data as AI adoption expands.

CrowdStrike and Palo Alto Networks are positioned in the cybersecurity market, where demand could benefit from these concerns. Unlike chipmakers, which depend heavily on hardware demand and infrastructure spending cycles, cybersecurity providers sell protection that businesses may consider essential even when budgets tighten.

However, stronger security demand does not guarantee higher profits or attractive share prices. Investors still need to consider valuations, competition and whether expected growth is already priced in.

💻 2. The SaaSpocalypse narrative faces a reality check

Earlier concerns suggested that generative AI could disrupt traditional software companies by allowing businesses to build their own tools or replace existing applications.

Recent share-price movements suggest investors may be reconsidering that assumption.

ServiceNow (NOW) and Workday (WDAY) also gained more than 10% during the week reported.

AI could threaten certain software business models, but it could also make existing platforms more valuable by automating workflows and improving productivity.

The key distinction is whether software companies can integrate AI into their products and generate additional revenue, rather than simply watching customers move to cheaper alternatives.

⚠️ 3. Strong chip earnings may no longer be enough

The semiconductor sector faces a different challenge: expectations are exceptionally high.

Lam Research (LRCX) fell 13% during the week after warning about supply constraints. Western Digital (WDC) also declined despite reporting solid earnings.

SanDisk (SNDK) provides an even more striking example. Its shares have surged more than 420% this year, yet the stock recently suffered a sharp pullback despite expectations for extraordinary sales and earnings growth.

When valuations and expectations rise this quickly, even excellent results may fail to satisfy investors.

This does not mean AI hardware demand is disappearing. Instead, investors may be questioning how much future growth is already reflected in share prices and whether companies can maintain their margins as the industry expands.

📊 4. The next earnings reports could determine the direction

This week’s results from Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL) should provide important clues about AI infrastructure spending.

Investors will be looking beyond headline revenue growth to examine capital expenditure plans, cloud demand and evidence that AI investments are generating commercial returns.

Results from Fortinet (FTNT), KLA (KLAC), Seagate (STX) and Intel (INTC) will also help investors assess conditions across cybersecurity, semiconductor equipment, storage and computing.

The crucial question is whether spending continues to expand across the AI ecosystem or whether investors begin favouring companies with more predictable demand and recurring revenue.

🎯 My takeaway

I don’t see this as the end of the AI hardware trade. Rather, it could signal a broadening of the investment opportunity.

Chipmakers and memory suppliers remain central to AI infrastructure, but cybersecurity companies may benefit as businesses confront the risks of deploying increasingly autonomous systems. Enterprise software providers could also recover if they demonstrate that AI strengthens rather than replaces their products.

The next phase may reward companies that can demonstrate sustainable earnings growth, rather than those simply associated with the AI theme.

For investors, the important question is no longer just who sells the chips, but who can turn AI adoption into durable profits.

For discussion purposes only.