These Two Charts Sum Up the AI Stock Rally in 2026

• Semiconductor equipment makers Lam Research, Applied Materials, and KLA are up 20-25% in 2026, driven by AI infrastructure buildout bottlenecks and high-bandwidth memory chip demand
• Major software stocks have plunged 8-24% as investors worry about competition from AI-native startups and the industry's inability to capture AI profits like 'picks-and-shovels' hardware suppliers
• Intel, briefly a top S&P 500 performer on hopes of federal and Nvidia investment, plummeted Friday after issuing disappointing guidance and warning its turnaround remains a 'multiyear journey'

AI Stock Rally Summary: Hardware Soars, Software Slumps

Key Market Developments

The 2026 AI rally is creating stark divergence between tech sectors. Hardware and semiconductor stocks are surging while software companies face significant pressure, marking a notable shift in investor sentiment.

Hardware Winners

Chip and Memory Stocks: Supply shortages and robust AI infrastructure spending have driven dramatic gains through January 22:

• Sandisk: +100% (doubled in under one month)
• Western Digital: +30%
• Micron: +30%
• Lam Research: +25%
• Applied Materials and KLA Corp: Nearly +20% each

Intel emerged as an S&P 500 top performer on optimism about federal investments and Nvidia backing, though shares plummeted Friday after disappointing Q1 guidance, with CEO Lip-Bu Tan warning of a "multiyear journey."

Software Sector Decline

Major software companies rank among the S&P 500's worst performers in 2026 (through January 22):

• Applovin: -22% (despite previous 700% gain in 2024)
• Adobe, ServiceNow, Intuit, Salesforce: All significant underperformers

Market Concerns: Investors worry AI-native startups pose competitive threats to established software firms, while hardware "picks and shovels" companies like Nvidia benefit more directly from AI infrastructure spending. Software companies report only modest AI-driven efficiency gains versus hardware makers experiencing supply-driven demand surges.

Market Implications

The AI trade continues evolving as new infrastructure bottlenecks emerge. Current focus centers on hardware enablement, with memory chip shortages particularly benefiting semiconductor manufacturers. This represents the latest rotation in an AI rally that has driven markets for over three years.