The AI trade may be broadening beyond semiconductors, with software ETFs suddenly outperforming after lagging much of the year.
The rebound accelerated Tuesday after shares of ServiceNow Inc (NYSE:NOW) jumped 5% intraday, Tuesday, extending gains from the prior session. Other enterprise software names including Salesforce Inc (NYSE:CRM), Snowflake Inc (NYSE:SNOW), Adobe Inc (NASDAQ:ADBE) and Workday Inc (NASDAQ:WDAY) also rallied as investors rotated out of crowded semiconductor trades and back into software.
The shift is increasingly visible in ETFs.
The iShares Expanded Tech-Software Sector ETF (BATS:IGV) holds software giants such as Microsoft Corp (NASDAQ:MSFT), Salesforce, Oracle Corp (NYSE:ORCL), Adobe and ServiceNow. It’s headed for a fourth straight session of gains.
Meanwhile, the WisdomTree Cloud Computing Fund (NASDAQ:WCLD), a more growth-oriented cloud software ETF with exposure to names like Snowflake, Datadog Inc (NASDAQ:DDOG), and CrowdStrike Holdings Inc (NASDAQ:CRWD), rebounded sharply after a difficult start to the year.
Both ETFs remain notably lower year-to-date, reflecting how software stocks lagged during the early phases of the AI rally as investors favored semiconductor and infrastructure plays tied to AI spending. These ETFs struggled amid concerns that generative AI tools could pressure traditional SaaS pricing models and weaken competitive moats.
Software ETFs Start Catching Up
Over the past month, however, momentum has shifted.
IGV and WCLD have each gained more than 9%, outpacing the tech-heavy Invesco QQQ Trust (NASDAQ:QQQ), which has risen roughly 7% during the same period despite remaining up around 13% year-to-date.
The divergence suggests investors may be looking beyond the first wave of AI winners.
From AI Infrastructure To AI Monetization
Enterprise software firms have increasingly positioned themselves as direct beneficiaries of AI-driven productivity gains rather than victims of disruption.
ServiceNow has been pushing AI-powered workflow automation tools across enterprise functions, while Salesforce continues integrating generative AI copilots into its customer relationship software. Adobe, Workday and Snowflake have also emphasized AI-enhanced features aimed at improving efficiency and expanding customer spending.
That shift has fueled speculation that the next phase of the AI trade may center less on building infrastructure and more on monetizing AI applications inside workplaces.
For ETF investors, software funds may now represent a catch-up trade after spending much of the past year in the shadow of chipmakers and mega-cap AI beneficiaries.
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