A new phase in the AI trade is forcing investors to separate Big Tech’s winners from losers — and reconsider whether beaten-down software stocks could offer protection from the increasingly volatile chip sector and the circular nature of the AI ecosystem. Cyrus Mewawalla, head of strategic intelligence at GlobalData, said cloud-heavy hyperscalers are being rewarded for turning AI investment into sales, sharpening the split between winners and losers. Deutsche Bank analysts, meanwhile, flagged software as a hedge against growing volatility within semiconductor stocks. Speaking with CNBC’s “Squawk Box Europe” on Monday, Mewawalla said investors have turned “incredibly jittery” around the tech space because they are not yet seeing strong enough AI revenues. The big four hyperscalers — Meta , Amazon , Google and Microsoft — have invested about $1.1 trillion since the start of 2023, following OpenAI’s launch of ChatGPT. This year, the four are expected to invest about $750 billion. Amazon, Microsoft and Google are accelerating cloud revenue growth, with much of that demand coming from AI players such as Anthropic. Apple and Meta, by contrast, saw their shares tumble. This, Mewawalla said, has made the tech sector “tense.” “For me, there’s no immediate risk to semis — but there are many, many other risks to the AI system,” he explained. He pointed to the circular web of investments linking hyperscalers, AI companies and data-center operators. “Everybody’s got a little investment in somebody else,” he said. “Just a small blip could send the whole pack of dominos down,” he said, pointing to the recent Situational Awareness debacle. NVDA YTD mountain Nvidia. Fears of an AI bubble mean investors are scrambling to identify which chipmakers are likely to remain essential to the AI buildout. Mewawalla said these include Nvidia , which provides the GPUs for compute power, and certain memory-chip manufacturers, namely Samsung , SK Hynix and Micron . As tensions between semiconductors’ short-term upside and longer-term uncertainty loom over investors’ portfolios, Deutsche Bank analysts said software may emerge as a relative winner and help offset volatility from chip holdings. “Semis have not only been the biggest single driver of index performance but also of volatility this year,” Deutsche analysts said in a note Monday. Deutsche research suggested that a pure semiconductor portfolio had outperformed a 50-50 software and semiconductor portfolio this year, but produced a weaker return once volatility was taken into account. IGV YTD mountain iShares Expanded Tech-Software Sector ETF. Short positions against software stocks have also slowly unwound since their peak in March, during the height of the so-called ” SaaSpocalypse ” sell-off, when markets were spooked by agentic AI’s disruptive impact on traditional software business models. Analysts, including Maximilian Uleer, head of European equity and cross-asset strategy, and Johannes Schaller, head of European software and senior semiconductor analyst, said investors risk underestimating established software vendors’ ability to adapt to, and incorporate, AI into their models. The bank has ended its outright overweight on software following the sector’s recent rally, but continues to favor it as a portfolio diversifier. “The best way to hedge against that volatility is to add software to the portfolio.”
