It’s a good day for software stocks today because Micron Technology Inc., Nvidia Corp., and other chip stocks are losing steam.
After Micron’s MU, -7.12% earnings report, the chip sector is down on Thursday because the company’s outlook did not live up to the hype. The company only expected to make as much money as expected because it doesn’t have enough products to meet the high demand.
This is exactly what’s happening at Nvidia, which is also working as hard as it can to meet demand. However, its profits will likely depend on how much capacity it has reserved at TSMC, since the phones are still ringing nonstop, wrote Richard Windsor, an independent analyst at Radio Free Mobile who has shares in both Nvidia and Micron.
Micron shares are down 7.6% on Thursday and are one of the biggest losers in the S&P 500 SPX. Nvidia shares are also down 2%.
Micron “is a direct read for consensus AI [semiconductor]/hardware longs,” wrote Jordan Klein, an analyst at Mizuho who works from his desk.
But what interests him the most is what he sees as a move into the software industry. Wall Street hasn’t been crazy about software stocks lately because customers aren’t spending as much and companies that make software have been slower than chipmakers to show how AI can help them make more money. Now, though, “real money” is pouring into mega-cap tech companies that aren’t in the semiconductor business.
The name Palo Alto Networks PANW, +4.78% stood out to him because it had a “fantastic” chart. After a big drop in February, the stock has been making a comeback. It’s up 5.3% in midday trading on Thursday, which is the second-best performance in the S&P 500.
There are also big moves up in other software stocks. Shares of Zscaler Inc. (ZS) are up 5.7%, and Salesforce Inc. (CRM) is up 3.99%, also by 5.8%. As of noon, Salesforce is the biggest gainer in the S&P 500.
The iShares Expanded Tech-Software Sector ETF IGV is up more than 2%, and Adobe Inc. ADBE, +3.42% shares are up more than 3%.
Klein says that investors should expect inflation numbers to be weaker tomorrow. However, he thinks that the tech sector as a whole will do well because there is “no big fear or rotation away.”
Kirk Materne of Evercore ISI was a bit cautious when talking about the outlook for the software industry. “Buy-side interest in the space seems to have grown a bit in the last couple of weeks,” he wrote. “However, we think that getting through July without any major surprises will be the key to building some momentum.”
