U.S. artificial intelligence equities displayed a sharp divergence during Wednesday's trading session. Software-focused AI names faced selling pressure, with Microsoft declining 2.6% to $402.72 and Alphabet slipping 2.0% to $312.25 by midday. Palantir Technologies saw a more pronounced drop of roughly 4.1%.
Chipmakers Find Favor
In contrast, semiconductor stocks tied to AI infrastructure attracted buyers. Nvidia advanced 1.5% to $191.29, while the VanEck Semiconductor ETF (SMH) climbed approximately 2.2%. This split highlights a growing investor distinction between AI hardware enablers and software application providers.
The rotation comes amid concerns that emerging AI "agent" technology could disrupt traditional enterprise software models by automating complex tasks within applications. Freshworks shares tumbled over 6% after the company issued a weaker-than-expected annual profit forecast, though its CEO dismissed fears of customers abandoning established platforms for do-it-yourself AI solutions.
Analysts See Overreaction
Some Wall Street strategists view the software sell-off as excessive. A JPMorgan team led by Dubravko Lakos-Bujas suggested the market is pricing in worst-case disruption scenarios unlikely to materialize in the near term. They recommended increasing exposure to "higher quality and AI-resilient" stocks, naming Microsoft, Palo Alto Networks, ServiceNow, CrowdStrike, and Datadog. Similarly, Morgan Stanley's Katy Huberty characterized the valuation pullback as "sentiment-driven, not fundamental."
Investors are now looking ahead to two critical events: the January U.S. Consumer Price Index report on February 13 and Nvidia's quarterly earnings on February 25. These updates are expected to provide further clarity on the inflation trajectory and the sustainability of the AI investment boom. Meanwhile, private investment continues to flow into the space, with Blackstone reportedly increasing its stake in AI startup Anthropic to around $1 billion, valuing the firm near $350 billion.
