AI Semiconductor Chips Vs. Software Stocks: Understanding Cyclicality And Disruption

Julian Lin Investing Group Leader Follow Summary Software stocks have recently outperformed semiconductor stocks, but long-term risks and narratives differ across both sectors. Nvidia Corporation and Microsoft Corporation are both AI-driven, but NVDA faces custom ASIC risk, while MSFT's growth is tied to Azure and custom chips. Palantir Technologies and CrowdStrike Holdings command premium valuations for durable growth, while Broadcom and Advanced Micro Devices offer near-term growth at lower multiples but with cyclical risks. Micron Technology and Salesforce represent discounted plays; MU benefits from AI memory demand but faces cyclical risks, while CRM contends with disruption from AI-native competitors. Looking for a portfolio of ideas like this one? Members of Best Of Breed Growth Stocks get exclusive access to our subscriber-only portfolios. Learn More » Hiroshi Watanabe/DigitalVision via Getty Images Are software stocks back? Is the AI trade over? The last two months have shown a surprising divergence in the trading action between semiconductor chip stocks and software counterparts. It can be tempting to try to trade the shift in sentiment, but one must This article was written by Julian Lin 38.08K Followers Follow Julian Lin is a financial analyst. He finds undervalued companies with secular growth that appreciate over time. His approach is to look for companies with strong balance sheets and management teams in sectors with long growth runways. Julian is the leader of the investing group Best Of Breed Growth Stocks where he only shares positions in stocks which have a large probability of delivering large alpha relative to the S&P 500. He also combines growth-oriented principles with strict valuation hurdles to add an additional layer to the conventional margin of safety. Features include: exclusive access to Julian's highest conviction picks, full stock research reports, real-time trade alerts, macro market analysis, individual industry reports, a filtered watchlist, and community chat with access to Julian 24/7. Learn more. Analyst’s Disclosure: I/we have a beneficial long position in the shares of NVDA, MU, AMD, CRM, PLTR, CRWD, MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.