Chip Stocks Are Soaring While Software Slows. Is a Reversal Looming?

By Joel South Published May 10, 7:30AM EDT

Quick Read

NVIDIA (NVDA) generated $68.13B in Q4 FY26 revenue, up 73% year over year with Data Center networking surging 263% and free cash flow of $96.58B, while AMD (AMD) rallied 91% in one month carrying a stretched P/E of 141 despite Q1 revenue growth of 38% to $10.25B. Salesforce (CRM) trades at just 24x earnings after falling 33% over the past year, with Agentforce ARR jumping 169% to $800M and insider buying across 87 recent transactions.
Semiconductor valuations have stretched far ahead of software as the market prices flawless AI infrastructure execution, setting up a potential rotation where capital flows back to undervalued platforms like Salesforce that combine cheap multiples with durable revenue and inflecting AI monetization.
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Chip Stocks Are Soaring While Software Slows. Is a Reversal Looming? — © 24/7 Wall St.

The 2026 tape has split in two. Semiconductor stocks have ripped higher on AI infrastructure demand, while software names that powered the last cycle have stalled or rolled over. NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) sports a market cap of $5.23 trillion and AMD (NASDAQ:AMD) has rallied more than 99% year to date (YTD), while Salesforce (NYSE:CRM) has dropped nearly 29% YTD and Microsoft (NASDAQ:MSFT) is down more than 12%.

The valuation spread has stretched far enough that the setup is starting to look ripe for a reversal. Here are the five names most exposed to that pivot, ranked by potential impact.

1. NVIDIA

NVIDIA sits at the center of the rally and the reversal risk. Q4 FY26 revenue hit $68.13 billion, up 73% year over year, with Data Center networking growing 263%. Free cash flow reached $96.58 billion for the year. CEO Jensen Huang said “Computing demand is growing exponentially. The agentic AI inflection point has arrived.”

Yet Polymarket traders price only a 45% chance NVDA hits $232 in May, and just 36% odds it closes the week above $215. Reddit r/wallstreetbets sentiment hit 90 on May 7, near euphoric extremes. With $95.2 billion in supply commitments and China Data Center revenue excluded from Q1 FY27 guidance, any hyperscaler capex wobble lands here first.

2. Advanced Micro Devices

AMD is the most stretched. Shares are up 91% in just one month and 327% over the past year, carrying a P/E near 141. Q1 2026 revenue rose 38% to $10.25 billion, with Data Center up 57%. The fundamentals are real, but the algorithmic price target sits at $333.09, implying 19% downside, and analyst consensus of $312.28 is below the current quote.

Reddit posts like “+$8,000,000 in April (188%). AMD and TQQQ on margin” with 5,753 upvotes scream retail leverage. Lisa Su called out that “Data Center now the primary driver of our revenue and earnings growth”, but a P/E of 141 leaves no margin for execution slips.

3. Salesforce

Salesforce is the cleanest reversal candidate on the software side. The stock is down 33% over the past year and trades at a P/E of just 24. Q4 FY26 EPS of $3.81 beat consensus by 25%, and Agentforce ARR jumped to $800 million, up 169%, with 29,000 deals closed.

Marc Benioff stated “Agentic AI is a tailwind for our business, and we’re well on our way to $63 billion in revenue in FY30.” Total RPO of $72.4 billion provides visibility, and insiders are net buying across 87 recent transactions. Analyst consensus target of $268.25 implies meaningful upside if AI software monetization catches up to chip multiples.

4. Microsoft

Microsoft is the bridge. The Intelligent Cloud segment grew 30% in Q3 FY26, and Azure expanded 40%, with the AI business at a $37 billion run rate, up 123% year over year. Yet More Personal Computing fell 1%, and capex hit $30.88 billion, raising ROI questions. Reddit sentiment turned bearish, dropping to 22 on May 7.

Satya Nadella said “We are only at the beginning phases of AI diffusion.” If hyperscaler capex sustainability gets challenged, Microsoft cuts both ways: it pays NVIDIA, and it sells the software layer that has to monetize the spend.

5. CyberArk Software

CyberArk Software (NASDAQ:CYBR) bridges high-growth software with AI-aligned demand. The company is in the process of being acquired by Palo Alto.

Q4 FY25 revenue rose 19% to $372.65 million, with subscription ARR of $1.27 billion, up 30%. Full-year revenue grew 36%. CEO Matt Cohen noted “customers prioritize identity security and the need to apply privilege controls across human, machine, and agentic AI identities.” The pending ~$25 billion Palo Alto Networks acquisition ($45 cash + 2.2005 PANW shares) caps upside but reduces downside, making it a softer landing if the rotation runs.

Conclusion

The macro backdrop supports rotation rather than crash. The VIX sits at 17.39, down 28% month over month, and the 10Y-2Y spread holds at 0.49%. Chips are pricing flawless execution; software is pricing stagnation. If hyperscaler ROI questions widen, capital flows back to platforms with cheap multiples, durable RPO, and inflecting AI revenue. The risk: AI demand stays vertical and chips simply consolidate before another leg up. The setup is what looks ripe.

About the Author Joel South →

Joel South covers large-cap stocks, dividend investing, and major market trends, with a focus on earnings analysis, valuation, and turning complex data into actionable insights for investors.

He brings more than 15 years of experience as an investor and financial journalist, including 12 years at The Motley Fool, where he served as an investment analyst, Bureau Chief, and later led the Fool.com investing news desk. He has also co-hosted an investing podcast and appeared across TV and radio discussing market trends.