Amid an apparent market rotation out of the semiconductor sector, software stocks rallied on Thursday with Palantir, Salesforce, Datadog, Monday.com and beaten-up Snowflake among the gainers. With Thursday's gains, Palantir stock has advanced nearly 47% in 2024 while Salesforce stock has dipped 4%.
Semiconductor stocks have out-performed software companies as plays on artificial intelligence.
"Seems like a rotation trade," said TD Cowen analyst Derrick Wood in an email. "There's been a lot of money rotation out of software and into semis over the last few months and just feels like the pendulum has swung too far. Yesterday/today we've seen a little bit of a snapback with what seems to be some rotation back into software on oversold conditions."
The iShares Expanded Tech-Software Sector ETF, an industry index, looks likely to turn in a strong June month performance after rising the past six trading sessions.
"Our flows today and during this stretch are showing clear signs of rotation: real profit-taking in semis/AI (artificial intelligence) names and the first signs of real demand in software," said a Jefferies report. "It's no secret that software exposures are historically low while semi exposures are elevated and this extreme move shows the pain of this unwind."
With Thursday's gains, the IGV index has gained about 10% in 2024 versus the Nasdaq Composite's nearly 21% advance. Artificial intelligence stock bellwether Nvidia dipped 1.9% to 123.99 on Thursday.
Shares in the AI-chip maker have retreated from an intraday high 140.76 set on June 20. Nvidia stock is still up 149% in 2024.
Meanwhile, the Invesco PHLX Semiconductor Sector index dipped 0.6% Thursday to 5,421. It's off about 7% from its 52-week high of 5,792.
Software Stocks: AI Hype
The IGV software index roared 59% last year amid hype over AI stocks.
But application software makers in the enterprise market have struggled to monetize new generative AI products and services. High interest rates have also pressured software stocks.
On the stock market today, Palantir stock rose 4.7% to close at 25.22. Salesforce stock rose 4% to 252.85. Snowflake stock advanced 3.7% to 133.92.
SNOW stock has plunged 32% in 2024 despite Thursday's gain. Snowflake faces stiff competition from privately held Databricks.
Meanwhile, Datadog stock rose 4.3% to 128.45. ServiceNow stock climbed 2.7% 774.13. Monday.com rose 2.6% to near 236.28.
The IBD Computer Software-Enterprise group ranks No. 109 out of 197 industry groups tracked by IBD.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
