Nvidia Has Been the King of AI. This ETF Bets the Next Winners Will Be Somewhere Else.

Nvidia (NASDAQ: NVDA) has unquestionably been one of the biggest beneficiaries of the artificial intelligence (AI) boom. The next phase of the AI trade, however, might be dominated by something completely different.

The one exchange-traded fund (ETF) I'm watching here to take advantage of this next phase is the iShares Expanded Tech-Software Sector ETF (NYSEMKT: IGV). Just as heavy AI development was hurting the long-term investment case for software, a potential push to slow AI development could conversely be the factor that drives software shares higher again.

For the most part of 2026 so far, semiconductors have been huge winners, while software stocks have struggled. This fund was down more than 14% through the end of June while the VanEck Semiconductor ETF (NASDAQ: SMH) gained more than 80%.

In the second half of 2026, that trend started to reverse. This quarter, the iShares Expanded Tech-Software ETF is up 15% while the VanEck Semiconductor ETF is down 14%.

There are a few catalysts causing it, and they may be in place for a while.

Image source: Getty Images.

Software would benefit from an AI development slowdown

Some of the earliest winners of the AI trade were the chip manufacturers and those companies providing the components that drive artificial intelligence capabilities.

But one of the sectors that lagged badly was software. Many people believed that AI and tools like Claude Code would replace the need for software development. While stocks even tangentially tied to AI growth were delivering big returns, investors worried that the software sector could soon become irrelevant.

That's changed over the past month or two.

The biggest AI narrative is whether development is happening too fast and security protocols are keeping up with the pace. Several prominent AI company executives have said that the pace of development should slow. If rapid AI infrastructure building helped cause software stocks to recover, it stands to reason that a slowdown in that build could turn them into leaders.

Cybersecurity has also gotten a lot of attention lately for those same security concerns. Companies like CrowdStrike (NASDAQ: CRWD), Cloudflare (NYSE: NET), and ZScaler (NASDAQ: ZS) have produced huge returns over the past months on the belief that companies will need to spend more on product security.

All of this creates a bullish investment case for software.

Why IGV works as the next beneficiary of the AI trade

One theme we've seen throughout the past year is that the markets are less concerned about AI hype. They're favoring companies that are delivering concrete results.

Less focus is being paid on how much capital is being committed to AI development. The market wants to see who will benefit from the infrastructure already built. The factors that made software look less attractive before are the ones making it look more attractive now.

It's been nearly three months since software and cybersecurity stocks have been outperforming the broader market. So this isn't just a short-term bounce. AI trade leadership has gone from the mega-cap hyperscalers to semiconductors to memory stocks. The next phase could belong to software developers.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cloudflare, CrowdStrike, Nvidia, and Zscaler. The Motley Fool has a disclosure policy.