Nasdaq 100 Forecast: AI Chip Correction Could Drive Rotation Into Software Stocks

Nasdaq is entering a key phase as momentum slows in semiconductor stocks and investors begin to look for value in cheap software stocks. AI demand remains strong but high chip valuations and record leverage have increased the risk of deeper correction in semiconductor stocks. A move into software stocks may help support the Nasdaq. A break above 30,500 could then push the index toward 33,000.

Agustina Patti, Financial Markets Strategist at Exness commented:

The Nasdaq is entering a phase where market leadership may become more diversified. While demand for AI infrastructure remains intact, elevated semiconductor valuations have increased sensitivity to earnings expectations and investor positioning. If capital continues to rotate within the technology sector rather than away from it, investors may increasingly watch whether software companies begin to contribute more meaningfully to broader index performance.

AI Chip Stocks Face Correction as Semiconductor Momentum Weakens

There is still a strong need for computing power in the long run. AI models need sophisticated chips, memory, cloud power and huge data centres. This will not go away if few companies reduce their spending. But the market may have already priced in several years of strong growth. That makes chip stocks more vulnerable to weak guidance, reduced spending and indications of over capacity.

But recent developments have called into question whether there was always a shortage of computing power. Meta Platforms continues to expand the computing infrastructure but investors are increasingly examining whether the heavy AI spending will produce sufficient returns. Meta CEO also admitted that AI agents had not progressed as quickly as expected. These comments do not represent a confirmation of the end of the AI investment cycle. But they do indicate a shift in how businesses are starting to examine the returns on their massive investments in AI.

Semiconductor Index Confirms the Correction

The major semiconductor stocks have lost momentum in June and July. The stock price of Micron Technology (MU) dropped to $804 in July after marking a peak at $1,255 in June. This pullback could be healthy as some of the speculation that was added during the previous positive price action is removed. The demand for memories can remain strong for years while the memory stock price can still remain in the corrective phase. The stock price may need to consolidate before the next surge despite the strong earnings outlook.

The PHLX Semiconductor Index also reached a peak of 14,655 in June and initiated a strong drop to mark a low of 11,194.60 in July 2026. The recent rally that began at the end of March 2026 has been driven by AI-related semiconductor demand. This correction highlights the semiconductors in a corrective phase.

The data from the FINRA also showed that the US margin debt reached a record $1.42 trillion in May. The debt has more than doubled from a year ago. This high leverage can exacerbate a correction when prices are dropping, as traders are forced to cut down on their positions.

Software Stocks Look Undervalued as Investors Rotate From AI Chips

Software companies became the other side of the AI trade. Many of them were considered by investors to be future losers as AI tools can decrease the demand for conventional software and consulting services. AI may reduce the pricing pressure and growth. But the market has become too negative and has priced some businesses for little or no future growth.

Adobe Inc. (ADBE), Salesforce Inc. (CRM), Intuit Inc. (INTU), Autodesk Inc. (ADSK) and Accenture PLC (ACN) are still profitable. These companies have strong balance sheets and cash flows. They might develop their businesses at slower pace but that does not imply that their businesses lack value. Their stock prices have dropped significantly during the past five years. The strong drop in major software shares indicates that the expected disruptions from AI boom may already be priced in the software stocks.

That represents a potential opportunity as investors transition from high priced momentum stocks to cheaper valuation stocks.

In addition, the share repurchases also suggest the case for a rebound. Adobe, Salesforce and Accenture have reduced their shares outstanding with Adobe recording the largest decline. The lower share count can support earnings per share and suggests that the management is returning capital to shareholders.

Nasdaq Outlook Hinges on Rotation from Chip Stocks to Software

The transition from semiconductors to software would not necessarily be bad for the Nasdaq. The index can stay strong as investors switch back and forth among the big technology stocks within the index. Chip stocks may consolidate following their healthy upside move and software stocks may bounce back from oversold levels. This would expand the market participation and reduce the reliance of the Nasdaq on a select number of companies commanding high valuations for AI stocks.

The main risk is that the semiconductor weakness spreads before software stocks find a stable bottom. In this case, Nasdaq may increase the risk of a deeper correction. Investors also could see a reduction in exposure if hyperscalers cut back investment spending faster than expected. During high valuations, the risk of disappointment is low. If leverage were to decrease or forced selling were to occur, it could contribute to short term volatility in crowded trades of memory and AI infrastructure stocks.

The broader picture for AI is bullish but the new phase might be different from the last. Chip stocks could continue to rally in the next few years but the gains may be slower and less dramatic. If the software stocks gain the investor confidence, they may attract more funding.

Chip stocks became more expensive during the recent AI rally while software stocks moved sharply lower. If the rotation develops from the expensive AI stocks to the cheaper software stocks, the Nasdaq may even be supported even if semiconductor stocks remain under pressure.

Nasdaq Technical Analysis: Break Above 30,500 Targets 33,000

The daily chart for the Nasdaq index shows the formation of an inverted head and shoulders pattern from December 2024 to June 2025. After the breakout from the inverted head and shoulders pattern, the index formed an ascending broadening wedge from June 2025 to the record highs.

The V-shaped recovery pattern in April 2026 and the breakout above the 26,000 level indicate that the index will likely remain higher. The index is now forming a triangle pattern from June 2025 to June 2026.

A break below the 28,300 level will open the door for a further drop toward the 26,000 area. But a break above the 30,500 level will open the door for a strong surge above 33,000.

The weekly chart for the Nasdaq also shows a strong bullish price pattern, with formation of a cup and handle pattern from December 2021 to December 2023. The index remains above the 50- and 200-week SMAs. This suggests the possibility of a strong surge toward the 33,000 area. However, any correction back toward the 50-week SMA at 26,200 will be considered a strong pivotal point for investors.

Final Words

The Nasdaq may remain supported if investors rotate from expensive semiconductor stocks into lower-valued software stocks. The chip demand remains strong, but recent price declines show that the market has moved too far ahead of the fundamentals. Software stocks may now offer a better risk and reward balance as lower valuations and share buybacks attract fresh interest. But the rotation must develop before weakness in semiconductor stocks spreads across the wider technology sector.

The technical outlook for Nasdaq remains strongly bullish as the index remains above the key support levels and forms constructive price action. A break above 30,500 could open the way toward 33,000. But a drop below 28,300 would increase the risk of decline to 26,000. The short term price compression indicates that the next move will depend on whether software stocks recover and offset the ongoing correction in the semiconductor sector.