The narrative of AI's disruptive impact on the software industry has triggered a wave of indiscriminate selling, pulling down AI chip stocks represented by NVIDIA, yet the underlying selling rationale contains an inherent contradiction. On Wednesday, NVIDIA's stock price fell by 3.41%, Broadcom declined 3.83%, Micron dropped 10%, and Sandisk plunged over 15%. Concurrently, selling pressure in the software sector persisted, with the iShares Expanded Tech-Software Sector ETF (IGV) falling another 1.8%. Following Anthropic's introduction of nearly ten new tools for its Claude Cowork platform, advancing AI applications into areas like sales and data analytics, the market quickly internalized the "AI will defeat software" narrative, translating it into valuation downgrades. However, the decline in software stocks has triggered a broader sell-off, encompassing the AI sector itself. Bank of America analyst Vivek Arya contends that the simultaneous downturn in chip stocks is illogical. He argues that falling chip prices imply deteriorating returns on AI investments, while declining software stocks suggest AI adoption will become massively pervasive; these two conclusions are difficult to reconcile, indicating the current market reaction is excessive. Why does the "AI defeats software" narrative end up dragging down AI chips? Vivek Arya points out that the market sentiment implied by the drop in AI-related chip stocks is that AI investments are deteriorating to a point where they fail to generate satisfactory returns, limiting future growth potential. Conversely, the decline in software stocks reflects an alternative view: that AI adoption will become widespread and significantly boost productivity, to the extent that it displaces traditional software business and application models. "These two outcomes cannot happen simultaneously," Arya wrote, noting that this trading pattern resembles the panic seen during the "DeepSeek冲击" episode in January, which ultimately proved unfounded. At that time, market fears centered on DeepSeek developing competitive models at lower costs, potentially reducing demand for expensive, high-performance chips. AI investment shows no signs of cooling, with capital expenditures far exceeding expectations. Arya believes that following the "DeepSeek冲击," the market has witnessed increased AI spending and accelerated growth in AI tokens. In his report, he estimates that cloud capital expenditure growth for 2025 could reach 69% year-over-year, significantly higher than the initial projections of 20% to 30%. He further emphasizes that even with impressive current AI model performance, proving tangible value from a productivity perspective might still take years; therefore, he does not anticipate a near-term slowdown in AI investment. Even if major productivity breakthroughs occur, models will require continuous improvement to maintain user engagement, suggesting investment may not necessarily decline. His conclusion is that while the ultimate shape of the software industry remains uncertain, the chip sector has already benefited and will continue to benefit from the AI construction cycle. He adds that enterprise AI adoption is still in its early stages, and a growing number of sovereign nations are also ramping up their AI investments. Arya also noted that chip sector valuations already price in concerns about spending slowdowns or earnings estimate revisions, concerns which "may not materialize." Why is NVIDIA being dragged down, and what should investors focus on? From a trading perspective, this downturn resembles a "narrative-driven correlation shock": when the market simultaneously sells software stocks betting on AI displacement, and sells AI chips betting on worsening AI investment returns, core AI assets like NVIDIA become vulnerable to being sold off amid portfolio liquidation and risk reassessment. For NVIDIA investors, the key short-term clarification needed is whether the current price volatility stems from fundamental changes in AI capital expenditure and demand, or from the cross-sector, indiscriminate de-risking triggered by the "AI defeats software" narrative.
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