Chip stocks hit their best performance since 2000, SaaS stocks fall to their lowest point this year: Two worlds under the AI divide

Author: Ada, Deep Tide TechFlow

On April 23, Texas Instruments’ stock hit its best single-day performance since 2000. On the same day, ServiceNow recorded its largest single-day decline in history.

In the same earnings season, on the same trading day, two opposite signals. The market is drawing a line with real money, and below this dividing line, AI infrastructure wins, while upper-layer AI applications lose.

Chipmakers are laughing, subscription sellers are crying.

On Thursday, Texas Instruments delivered an almost flawless earnings report. Q1 revenue was $4.83 billion, up 19% year-over-year, with EPS of $1.68, far exceeding market expectations of $1.40. Data center revenue surged 90% year-over-year. Industrial and analog chip businesses fully recovered.

The stock price rose 18% that day. Bank of America directly upgraded its rating from Neutral to Buy, with the target price increasing from $235 to $320.

Its forecast for Q2 earnings is revenue between $5 billion and $5.4 billion, with a median more than 10% above Wall Street expectations. Management said the recovery in industrial and data center sectors is “still accelerating.”

After hours, Intel dropped a bombshell. Q1 revenue was $13.58 billion, far exceeding the expected $12.42 billion. Non-GAAP EPS was $0.29, compared to market expectations of $0.01, a 29-fold increase over expectations. Data center business revenue grew 22%, reaching $5.1 billion.

Intel’s stock price after hours surged over 20%, breaking the record high from the internet bubble era in 2000. Last year, the U.S. government bought a 10% stake, and this year, the stock has already risen over 80%.

The carnival in the chip industry has an underlying logic. Because AI is not just air; it consumes electricity, chips, and data center space. From NVIDIA’s GPUs to Texas Instruments’ analog chips, and Intel’s CPUs and advanced packaging, the entire AI infrastructure supply chain is being called “on board.”

Semiconductor ETFs (SMH) have risen nearly 28% this year, with a 22% increase in April alone. The S&P 500 rose only 4% in the same period.

On the flip side, the software sector has experienced a slaughter.

ServiceNow plummeted 18 that day, its worst single-day drop ever. IBM fell nearly 10%. Then the contagion spread: Salesforce, Workday, Oracle, Adobe, Palantir all declined sharply. The iShares Expanded Tech Software ETF (IGV) fell nearly 5% that day.

Most ironically, the earnings reports of IBM and ServiceNow themselves were not bad. IBM’s revenue exceeded expectations, and ServiceNow also beat estimates. But the market doesn’t care. It is pricing in a deeper fear: your moats are being eroded by AI.

SaaS Doomsday

This is not just a one-day event.

Over the past few months, a new phrase has circulated in tech, venture capital, and public markets: “SaaSpocalypse,” the end of SaaS. Since February, the collapse of software stocks has not stopped. So far, approximately $2 trillion in enterprise software market value has evaporated.

Salesforce has fallen over 30% this year. Workday down 33%. Adobe down 27%. Even Microsoft has dropped 16%. The software ETF (IGV) has fallen from a historic high of $117 to around $82, entering a technical bear market. The forward P/E ratio of the software sector has fallen below the overall level of the S&P 500, the first time since the mid-2010s.

Why?

The core logic is just one sentence: AI enables companies to do it themselves.

Traditional SaaS business models charge per seat. If you have 100 employees using my software, you buy 100 licenses. But with AI agents, one agent can replace the work of 10 employees. Fewer seats mean fewer subscription fees.

Even more critically, some companies are starting to build internal tools directly with AI, bypassing the SaaS middle layer. Previously, buying a CRM cost $300 per user per month; now, having AI write an internal system might cost only a tenth of that.

In other words, the moat of SaaS used to be the high migration costs and user stickiness. But AI short-circuits both. Migration costs are lower because AI can automatically handle data transfer; stickiness is lower because users no longer need to learn new tools.

Narrative Shift

Look at two sets of data.

This year so far, the semiconductor index has risen about 40%. The software index has fallen over 13%. The gap exceeds 50 percentage points.

What does this mean? Capital hasn’t left the tech industry. It has just rotated precisely within the industry: from application layer to infrastructure layer.

The current logic is simple. If I want to bet on AI, I buy chips because no matter which company’s AI wins, it will need chips. But I may not buy SaaS.

This is the cruel reality of the market. Chips are a certainty bet; regardless of how AI develops, the demand for computing power only increases. Software is a conditional bet: it only has value if AI cannot fully replace software and if software companies can successfully transform.

Both conditions are uncertain, and capital hates uncertainty.

However, it is not entirely fair to attribute all of ServiceNow and IBM’s declines solely to AI threats.

ServiceNow’s CFO Gina Mastantuono mentioned a specific reason during the earnings call: Middle Eastern conflicts caused order delays. Customers from Iran pulled new orders, directly dragging down that quarter’s subscription revenue.

IBM’s issues also have specific explanations. The growth rate of its software business slowed from 14% last quarter to 11.3%, mainly due to Red Hat cloud business drag. Overall revenue growth slowed from 12.2% to 9%. IBM then maintained its full-year guidance without upward revision.

But the market doesn’t care about these details.

In an environment where everyone is worried about “software dying,” any less-than-perfect earnings report is interpreted as “see, it’s starting.” Once this sentiment takes hold, data becomes irrelevant. The narrative becomes everything.

And the current narrative is: AI is the hunter at the top of the food chain, SaaS is the prey at the bottom.

The Surge Behind

Behind Texas Instruments’ 18% rise, there is a less attractive number: a P/E ratio exceeding 50 times. Over the past three months, insiders sold $26.5 million worth of stock, with no purchases.

Intel’s forward P/E is 120 times, more than four times that of the S&P 500. An valuation firm estimates its intrinsic value at $27, while the stock trades around $67. a 147% premium.

What is clear is that current chip stock prices have already discounted the growth of the next three years. Buyers are not betting on this quarter’s performance but on the belief that AI capital expenditure will keep going.

This year, the four major tech giants’ AI capital spending exceeds $500 billion. Google alone plans to spend $180 billion. As long as this capital expenditure cycle continues, chip stocks will have support. But what if a giant suddenly finds the ROI of spending insufficient?

Remember, when Alphabet announced its $180 billion capital expenditure last time, its stock plunged 6% after hours. The market’s reaction was: “We know you’re building AI, but we’re starting to worry if you can hit the ball.”

Looking further out, the earnings divergence on April 23 reveals a larger structural shift.

AI value capture is migrating downward. From subscription fees at the software layer to chip fees, energy costs, and data center expenses at the hardware layer. The profit distribution map of the entire tech industry is being redrawn.

When chip stocks hit record highs since 2000, and subscription stocks hit new lows this year, the market is essentially saying: I know AI is real, so I want to buy infrastructure. But is AI useful? I’m still unsure, so I won’t buy applications.

How long will this split last? No one knows. But a reference point is the next earnings season. If giants continue to ramp up AI capital expenditure, cash flows from chips can sustain valuations. But if any giant suddenly hits the brakes, this divide will reverse.

Until then, the chip celebration continues, and the SaaS funeral marches on.