The Disappearing Correlation Between SMH and IGV

For years, traders treated SMH (VanEck Semiconductor ETF) and IGV (iShares Expanded Tech-Software Sector ETF) as closely related tech plays. When semiconductors moved, software usually followed, and vice versa. That relationship has broken down.

In 2022, SMH and IGV moved in the same direction on 85.1% of trading days. Both ETFs were sensitive to the same broad drivers: growth sentiment, interest rate expectations, and the overall technology investment cycle. A strong day for one was usually a strong day for the other.

So far in 2026, that figure has collapsed to just 55.2%. The two ETFs now move together barely more often than a coin flip. What was once a reliable paired relationship inside the technology sector has become one of the more notable divergences in the market.

Why AI broke the link

The rise of artificial intelligence is the primary driver behind this decoupling.

The current AI cycle has been dominated by massive capital spending on infrastructure, including data centers, power, networking, and especially the advanced chips required to train and run large models. This spending flows directly to semiconductor companies. SMH, with heavy exposure to NVDA, AVGO, AMD, TSM, and other chip leaders, has captured the bulk of this infrastructure wave.

Software companies in IGV have a more indirect and uneven relationship with AI spending. While many are integrating AI features into their products, the revenue impact has been slower and less concentrated than the hardware buildout. Some segments of software also face longer-term questions about whether generative AI will eventually disrupt or commoditize traditional software models.

The result is visible in price action. There have been extended periods where SMH rallies sharply on AI infrastructure news while IGV is flat or lower.