The correlation between U.S. chip stocks and software stocks turns negative for the first time, as AI drives internal divergence within the tech sector.

The correlation between the performance of US chip stocks and software stocks has fallen below zero, marking the first negative value on record and highlighting the increasing internal divergence within the technology sector due to artificial intelligence.

According to Bloomberg, the indicator measuring the degree of correlation between the iShares Semiconductor ETF and the iShares Expanded Technology-Software ETF over the past 40 trading days closed in negative territory for the first time last Friday, and further recorded -0.05 on Tuesday. At the level of S&P 500 constituent stocks, the correlation between chip and software stocks remains positive, but has dropped to its lowest level since 1994.

The divergence at the individual stock level is particularly striking. Storage chip leader Micron Technology has surged over 150% so far this year, while enterprise software company ServiceNow has fallen more than 33%, a gap of over 180 percentage points between the two.

Over the past few months, investors have been buying semiconductor stocks and selling software stocks. Driven by the surge in infrastructure spending for AI computing power and accelerating profit growth from chip makers such as Nvidia and Micron Technology, this trading strategy has brought substantial returns.

In contrast, software stocks have been under pressure, mainly because the market worries that competition from AI companies like OpenAI and Anthropic will erode their business and drag down long-term revenue growth.

Brad Conger, Chief Investment Officer at Hirtle Callaghan, said investors have been "betting on AI capital expenditures and shorting stocks vulnerable to AI disruption." He added that momentum-based trading strategies also seem to have been attracted to this hedging trade.

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