AI Chip Trade Unwinds as India IT Sector Posts Record Monthly Outperformance
Miles Bennett
India's software sector is beating global chip stocks by nearly 30 percentage points this month — the widest single-month gap on record — signaling a systematic rotation out of overheated AI chip plays and into battered IT-services names.
Where does the 30-point gap come from?
The NSE Nifty IT Index — 10 Indian software exporters — is up 16% this month, while the MSCI global semiconductor index is down 13%.
This means → one sector rising, the other falling, opening a gap of nearly 30 percentage points. This is not single-stock noise; it is a wholesale shift in fund flows.
In plain terms = last month the market was chasing chip stocks; this month the money has moved to software.
Why did chip stocks lose their shine so fast?
The global chip sell-off is driven by three converging pressures: doubts over AI capex returns, growing suspicion of Nvidia's "circular financing" dynamics, and a reassessment of China's memory-chip competitive threat.
South Korea's KOSPI has fallen over 30% from its mid-June peak, posting a single-day drop of 10.76% — the worst since 1998. SK Hynix fell 14%; Samsung Electronics fell 13.58%.
This reflects a systematic loss of confidence in the "AI chip narrative" — not one company stumbling, but the entire thesis being questioned.
Why is India's software sector catching the bid?
Jefferies upgraded India's IT sector to "neutral" last week, explicitly noting that a fading AI trade could trigger a tactical rebound.
On Tuesday, Infosys and Tata Consultancy Services led Asian software stocks higher, each gaining over 3%; peers in China and Australia followed.
In plain terms = Indian IT stocks were crushed over the past year by the chip-stock frenzy. Now that chips are cooling, capital is circling back and finding these companies weren't as broken as priced.
Is the same switch playing out on Wall Street?
The iShares Expanded Tech-Software ETF edged up 0.3% this month, while the Philadelphia Semiconductor Index plunged 19% — the crowded "buy chips, sell software" trade is visibly unwinding.
Wall Street is turning bullish on software: Guggenheim upgraded Salesforce, ServiceNow, and Check Point, calling earlier predictions of the software industry's demise "pure nonsense."
HSBC raised Adobe from "hold" to "buy," arguing the market has overestimated the negative impact of AI design tools.
Can the rebound last?
The current rally in Indian IT is fundamentally a rotation-driven tactical rebound, not a sudden improvement in fundamentals.
This means → whether it becomes a sustained trend hinges on one key test: can AI application rollouts deliver verifiable revenue gains for software companies?
In plain terms = the money has moved over, but for it to stay, software firms need to show real AI-driven earnings.
Content is for reference only, not financial advice.