So much for the so-called SaaSpocalypse.
Shares of large software-as-a-service companies, such as cybersecurity firms CrowdStrike and Palo Alto Networks -- a Barron's stock pick in June -- were among the top-performing stocks in the S&P 500 this week, with each surging more than 10% during a volatile couple of days for the tech sector and broader market. Elsewhere in the software sector, ServiceNow and Workday each also rose more than 10%.
Meanwhile, chip stocks got crushed. Semiconductor equipment company Lam Research plunged 13% this week after warning of supply constraints. It's another sign that the landscape for winners and losers in the artifical-intelligence trade is constantly shifting. Several other semiconductor companies, including Lam rival KLA and AI chip and infrastructure firms Cerebras Systems and Credo Technology, all fell more than 10%.
Meanwhile, the iShares Expanded Tech-Software Sector exchange-traded fund and the First Trust NASDAQ Cybersecurity ETF rose 6% and 7% this week, respectively, while the iShares Semiconductor ETF fell 3%. (The broader market ended the week mixed, with the Dow notching a 0.4% gain and the S&P 500 and Nasdaq marking respective losses of 0.5% and 0.7%.)
Investors, at least for now, seem to be gravitating toward companies that are expected to get a big boost in demand thanks to AI. Think cybersecurity as worries about data breaches and other concerns about rogue AI agents mount. Enterprise software firms are rebounding following a slide earlier this year due to fears -- that now appear to have been overblown -- about how AI could make big corporate software firms obsolete.
Meanwhile, there are growing concerns among investors that the rally in chip stocks and other hardware companies -- which have been viewed as the biggest beneficiary of hyperscalers such as Amazon, Microsoft and Alphabet investing heavily in AI -- needs to cool off a bit.
Along those lines, shares of hard drive maker Western Digital fell Friday despite reporting solid earnings. The stock is up nearly 100% this year.
Investors should get more clarity about how this dynamic in the tech stock trade is unfolding in the coming week. Microsoft, Amazon and Alphabet are all due to report quarterly earnings. So are ServiceNow, cybersecurity firm Fortinet, KLA, Western Digital competitor Seagate, plus Intel and Sandisk.
Sandisk, for example, is expected to report a year-over-year sales increase of more than 360% and an earnings per share surge of nearly 3,700% from a year ago. Those are not misprints. Demand is booming for Sandisk's flash memory drives due to AI.
Could this growth be enough to satisfy investors? Sandisk shares are up more than 420% this year, and the stock is the second-best performer in the S&P 500. But shares fell nearly 5% last week and have plunged more than 30% in the past month.
As earnings season continues, great results may not be enough to shift the scales back towards AI hardware stocks.
