Software stocks set to rebound as valuations compress, says Seaport By Investing.com

Price-to-earnings multiples have fallen more than 30% for both software and semiconductor groups since July; software stocks have dropped 25% while chip stocks have gained 15%. Seaport strategist Jonathan Golub flags upside in software and in Nvidia, Broadcom and AMD, noting valuation/growth misalignment: Nvidia at 21x for 66% 12‑month forward growth, Broadcom at 23x for 60% and AMD at 25x for 62%, versus the S&P 500 at 20x for 15.5% growth. He suggests software may be positioned for a rebound despite broader market caution amid Hormuz tensions and central bank focus.

Analysis

The headline divergence between software and semiconductor multiples masks a concentration risk: a handful of AI-capex winners are carrying much of the semiconductor narrative, leaving the sector vulnerable to any demand rephasing. Because revenue for top GPU vendors is lumpy and front-loaded into data-center refresh waves, a one-quarter slowdown or order push-out can compress earnings expectations fast and force multiple re-rating within 30–90 days.

Software weakness looks overstated on a flow basis — many active quant and CTA strategies remain underweight software exposure that historically re-rates quickly when growth re-accelerates or macro volatility eases. A modest rotation (5–15% of equity allocation) from overowned hardware names into software could produce an outsized relative move within 3–6 months as P/E compression reverses and multiple catch-up occurs.

Market-structure risks amplify both sides: concentrated call open interest and dealer gamma around the largest chip names magnify intraday moves and increase fragility into earnings and macro prints. Near-term catalysts to watch are GPU ASPs and order cadence over the next two quarterly reports, channel inventory metrics reported by ODMs in the coming 1–2 quarters, and any Fed commentary that materially alters rate expectations — each can flip the consensus and trigger >20% moves in either direction.

Key Decisions for Investors

• Pair trade (3–6 month): Long IGV (software ETF) / Short SOXX (semiconductor ETF), 1:1 notional. Size to 1–2% portfolio risk; target 20–35% relative return if software re-rates; stop-loss: 8% absolute move against the pair or re-weight after earnings windows.
• Directional NVDA trade (6–9 month): Buy a call spread (ATM to ~20–25% OTM) sized to 0.5–1% portfolio risk. Enter on a 3–5% pullback or pre-earnings if implied vol is >25% of 90-day realized; capped-loss equals premium, upside asymmetry ~2–3x if data-center momentum holds.
• Relative-short AVGO (3 month hedge): Short AVGO at 0.3–0.6x size of NVDA long exposure and buy 8–10% OTM puts to limit tail risk (cost ~2–4% of position). Rationale: growth/valuation mismatch vs market expectation; stop-loss on short if AVGO rallies 15% or if guidance surprises positively.
• Tail hedge (1–3 month): Buy SPX 3–5% OTM puts sized to cap total portfolio drawdown to ~12% during earnings/macro windows. Cost is insurance for concentrated long-semiconductor exposure and is preferable to ad hoc deleveraging when gamma-driven moves occur.