Key TakeawaysWith software stocks lagging and hardware stocks surging, the technology sector has shown a wide split of performance in 2026, continuing a trend of increasingly wide dispersion since 2021.Hardware stocks tied to data center storage and semiconductors have helped the tech sector regain its momentum.Software names continue to lose ground as the disconnect between share price and earnings deepens.<\/p>\n
Depending on where you look, it\u2019s either been an amazing year for technology stocks or it\u2019s been a lousy one.<\/p>\n
The difference reflects the widely disparate impact of the artificial intelligence boom. The stocks of companies supplying the buildout\u2014most notably semiconductors and memory firms\u2014have been soaring, in some cases doubling and tripling in price in just a few months. Meanwhile, software stocks, whose business models and competitive advantages are seen as threatened by AI, are posting losses.<\/p>\n
\u201cEssentially, the thesis by the marketplace is that artificial intelligence will end up disrupting the software business model quite significantly,\u201d says Morningstar\u2019s Chief US Market Strategist Dave Sekera.<\/p>\n
\u201cIn fact, many people are concerned that artificial intelligence will end up just completely displacing a lot of software platforms altogether,\u201d adds Sekera, who believes the software fears are overblown.<\/p>\n
Those investor fears have resulted in an exceptionally wide dispersion of returns across the tech sector. This year, through May 13, there\u2019s a staggering 133-percentage-point gap between the average returns of the top and bottom 10% of tech stocks.<\/p>\n
The performance gap has been growing in recent years, with the current range wider than it was at the end of 2025 and almost double the dispersion level from three years ago.<\/p>\n
Hardware, Semiconductor Stocks Power Tech Sector<\/p>\n
The top 10% of tech stocks have returned on average 93.3% this year. This group mainly includes computer hardware names, which account for three of the sector\u2019s top five stocks in terms of year-to-date returns. The tech sector\u2019s leader is currently memory hardware company Sandisk SNDK<\/a>, which has seen returns increase by a whopping 511.4% this year. That\u2019s more than twice the returns of the next best performer, Intel INTC<\/a>, which falls in the semiconductor industry.<\/p>\n Computer hardware stocks have staged massive rallies, averaging returns of 92.5%, more than 20% above the industry\u2019s 2025 returns. Hardware stocks\u2019 2026 rally is also just above the industry\u2019s prior five-year average returns of 82.7% from 2020 to 2025.<\/p>\n Semiconductor companies have been the other big winners. Semiconductor equipment and materials stocks within Morningstar\u2019s US Technology Index are up 76.6% on average in 2026, and semiconductor stocks have gained an average of 69.4%. Intel is the semiconductor industry\u2019s top performer, with its share price leaping more than 225% this year. Intel recently reported \u201cblowout\u201d first-quarter revenue, and the company will likely see persistent, strong demand for its server processors as the AI buildout continues, wrote Morningstar\u2019s Brian Colello in a recent analyst note on Intel\u2019s results<\/a>.<\/p>\n While the AI boom initially contributed to the rise of chipmakers like Nvidia NVDA<\/a>, Sekera says the data center buildout is pushing commodity-oriented hardware names to new heights, especially those tied to memory and storage. \u201cThe reason [hardware] stocks have been going up is because people are now forecasting for the next couple of years this huge shortage in that type of commodity-oriented hardware,\u201d Sekera says.<\/p>\n Alongside Sandisk, industry leaders include storage companies Seagate Technology STX<\/a> and Western Digital WDC<\/a>, whose share prices have jumped 194.2% and 183.8% this year, respectively. These are three of the tech sector\u2019s top four performers in 2026, and they all provide storage solutions for data centers.<\/p>\n Hardware companies\u2019 profits and operating margins are rapidly expanding thanks to the AI buildout boom, Sekera says. He expects demand for AI infrastructure products to peak in 2028. While these hardware companies ride the AI wave now, he warns that a drop in demand could unravel the industry.<\/p>\n \u201cWe would expect that in the future, as supply catches up to the amount of demand in the marketplace, [commodity-oriented hardware companies] would be the ones that I would suspect would have the greatest downside risk and probably gap to the downside once they start to sell off,\u201d Sekera says.<\/p>\n Software, IT Stocks Continue to Drag Down the Tech Sector<\/p>\n Meanwhile, the bottom 10% of the tech sector has fallen 39.3% on average for its worst performance since 2022. Of the 10 tech stocks with the worst 2026 returns, eight fall within the software industry. Those include software marketing and sales company HubSpot HUBS<\/a> and transit software firm Via Transportation VIA<\/a>, which have both seen returns drop roughly 50% since the start of 2026.<\/p>\n This year, software stocks have extended declines that began in the fourth quarter of 2025. More than 75% of the 86 software application and infrastructure companies in the Morningstar US Tech Index are down in 2026.<\/p>\n By contrast, only about 7% of computer hardware and semiconductor-related stocks are in the red this year.<\/p>\n Software application firms, including Atlassian TEAM<\/a> (down 47.6% this year) and Workday WDAY<\/a> (down 44.8% this year), have lost an average of 23.9% in 2026 to become the second-worst performer by industry, behind information and technology services. Software application returns for 2026 are far below their prior five-year average gains of 27%.<\/p>\n It\u2019s a similar story for software infrastructure stocks like SailPoint SAIL<\/a> (down 42.6%) and Zscaler ZS<\/a> (down 35%), which have lost on average 5.3% this year, compared with their five-year average gains of 28.6%.<\/p>\n This year, the market has grown increasingly skeptical<\/a> of software companies\u2019 abilities to keep their fundamentals intact amid the AI boom. That said, the latest round of earnings calls provided some evidence that software companies are weathering the storm.<\/p>\n For example, Microsoft MSFT<\/a>, which has seen returns fall 15.5% this year, reported better-than-expected revenue, thanks to AI-driven demand. \u201cResults continue to look good from a variety of facets, as headline numbers came in ahead of our aggressive expectations on both the top and bottom lines,\u201d wrote Morningstar\u2019s Dan Romanoff in a recent analyst note<\/a> on Microsoft\u2019s earnings report.<\/p>\n Sekera says he believes software companies will integrate AI into their business models and boost their product offerings. He attributes the market\u2019s distaste for software to an overreaction and doesn\u2019t believe software companies will be replaced.<\/p>\n \u201cThere is definitely a long-term opportunity in AI stocks,\u201d he says. \u201cIt certainly remains compelling today. However, I think investors need to be selective.\u201d<\/p>\n Sekera says investors, when trying to achieve their long-term financial goals, need to distinguish between stocks that are on the forefront of AI innovation with long-term, durable competitive advantages and those that aren\u2019t. <\/p>\n","protected":false},"excerpt":{"rendered":"Key TakeawaysWith software stocks lagging and hardware stocks surging, the technology sector has shown a wide split of…\n","protected":false},"author":2,"featured_media":443612,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[345,343,344,85,46,125],"class_list":["post-443611","post","type-post","status-publish","format-standard","has-post-thumbnail","category-artificial-intelligence","tag-ai","tag-artificial-intelligence","tag-artificialintelligence","tag-il","tag-israel","tag-technology"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/443611","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=443611"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/443611\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/443612"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=443611"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=443611"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=443611"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}