Civil war inside the tech sector: semiconductors significantly outperform software

Overview

This report centers on the theme of a 'tech civil war,' discussing the pronounced divergence between software and semiconductors inside the S&P 500 technology sector. It argues that technology stocks are no longer in a phase where all technology is winning, but have entered a structural divergence phase with clearer winners and losers.

Core views

The core view is that semiconductors and semiconductor equipment are clearly outperforming software and services, and this divergence has broken the historically tighter relationship between the two.

Analysis framework

The report explains this by comparing the total return ratio of S&P 500 semiconductors and equipment versus software and services, three-month rolling correlations, and changes in sector weights of the two sub-industries in the technology segment and the S&P 500, showing that the internal structure of the technology sector is being repriced rapidly.

Methodology notes

• Relative performance analysisSub-industry total return ratio and rolling correlation

  Comparing relative performance and correlation changes of semiconductors versus software within the S&P 500

  The report uses the total return ratio of semiconductors and equipment relative to software and services, along with three-month rolling correlation, to assess whether the two technology subsectors still maintain their historically synchronized relationship.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• S&P 500 semiconductors and semiconductor equipment

  Beneficiary asset

  Strengths

  Outperforming software significantly, with index weight rising, and capital allocation tilted toward the hardware layer.

  Weaknesses

  The report notes that semiconductors have shown some weakness over the past few weeks.

  Comparison

  Performance has been materially stronger than software and services since end-October 2025.

  Risks

  Valuation crowding, weight concentration, short-term drawdowns, and intra-tech rotation risk.

• S&P 500 software and services

  Pressured asset

  Strengths

  Still an important component of the technology sector.

  Weaknesses

  Total return is about -23% since end-October 2025, and weight has declined materially.

  Comparison

  Clearly lagging semiconductors, with the market partly classifying it as traditional exposure.

  Risks

  Further repricing away from the growth/AI hardware chain.

• U.S. technology index

  Broad exposure

  Strengths

  Still offers technology-theme exposure.

  Weaknesses

  Internal structural divergence is intensifying, and index exposure is increasingly influenced by semiconductor weight.

  Comparison

  Buying the technology index no longer means equal exposure to all technology subsectors.

  Risks

  Investors may underestimate internal index weight migration and concentration risk.

Key data

• Report date2026-07-09The report cover page states Date 9 July 2026.
• Software and services performanceabout -23%Total return performance since end-October 2025.
• Semiconductors and semiconductor equipment performanceabout +30%Total return performance since end-October 2025.
• Current semiconductor weightApproximately 48% in tech, approximately 18% in the S&P 500Up from the technology sector 42% and S&P 500 15% at end-October 2025.
• Current software weightApproximately 23% in tech, approximately 8% in the S&P 500Down from the technology sector 34% and S&P 500 12% at end-October 2025.

Impact & implications

When investors buy the U.S. technology index, the exposure obtained is no longer broad technology exposure, but a concentrated bet on the divergence between semiconductors and software within technology. The index-weight changes imply that passive or thematic allocations are quietly changing the risk factor.

Risks

• Rapid changes in internal tech-sector weights may increase concentration risk in portfolios.
• Semiconductors have shown some short-term weakness; if the rotation in capital reverses, related exposure could come under pressure.
• The process of re-pricing software as traditional exposure may continue to weigh on relative performance.
• Since this is thematic research rather than stock-level investment advice, investors still need to independently assess suitability and market risk.

What to watch

• Whether the total return ratio of S&P 500 semiconductors and equipment versus software and services continues to rise.
• Whether the three-month rolling correlation between the two subsectors recovers or continues to show structural decoupling.
• Whether semiconductors become further concentrated in both the technology sector and the S&P 500.
• Whether software and services can regain capital inflows and valuation support.
• Whether investors in the U.S. technology index begin to reassess internal sector exposure.