Tech Sector Shift: Investors Flee Semiconductors for Beaten Down Stocks

The tech sector is experiencing a significant shift in investor sentiment, with several beaten-down stocks rallying as investors rotate out of semiconductors. The iShares Expanded Tech-Software ETF (IGV) is up 0.6%, while the iShares Semiconductor ETF (SOXX) is down about 5.4%. This rotation is evident in the performance of Netflix (NASDAQ:NFLX), Salesforce (NYSE:CRM), and Adobe (NASDAQ:ADBE), which are up 3.2%, 3.8%, and 4.6% respectively.

The selling is concentrated in AI hardware, with Micron (NASDAQ:MU) leading declines alongside Marvell (NASDAQ:MRVL). However, the fundamentals of these beaten-down stocks have not collapsed. Netflix Q2 revenue grew 12% year-over-year, Salesforce posted $11.13 billion in Q1 revenue, and Adobe delivered $6.62 billion in Q2 revenue.

Three catalysts converged to drive this rotation: Anthropic's lower-than-expected annualized revenue run rate, The Wall Street Journal's report on top tech companies' off-balance-sheet commitments related to AI, and the 30-year Treasury hitting a 19-year high. These factors have led to a re-rating of AI demand and higher discount rates.