Supatman/iStock via Getty Images By Mark Barnes, PhD, Head of Global Investment Research, Americas, Global Investment Research, FTSE Russell | Indhu Raghavan, CFA, Manager, Global Investment Research, FTSE Russell | Belle Chang, MBA, Senior Manager, Global Investment Research, FTSE Russell The evolving AI narrative has shifted technology leadership from software to hardware. Hardware companies ben...
Supatman/iStock via Getty Images By Mark Barnes, PhD, Head of Global Investment Research, Americas, Global Investment Research, FTSE Russell | Indhu Raghavan, CFA, Manager, Global Investment Research, FTSE Russell | Belle Chang, MBA, Senior Manager, Global Investment Research, FTSE Russell The evolving AI narrative has shifted technology leadership from software to hardware. Hardware companies benefit from tangible demand, secured orders, and near-term cash flows, while software faces uncertainty around model economics, disruption risks, and capex payoff. Recent regional equity dispersion reflects differing exposures within the AI theme. Hardware and Telecom Equipment weights explain why APAC ex Japan ex China and Japan have led global returns, while software-heavy regions, such as the US and China, have lagged. In APAC, Japan, Korea and Taiwan outperformed due to their heavy weights in Hardware and Telecom Equipment. These markets benefit from robust demand for memory chips, advanced semiconductors and precision equipment, essential for AI supply chain and infrastructure. Introduction Global equity markets have been driven to a great extent by the AI capex-fueled tech rally over the last three years. Until recently, there was not much differentiation between the Hardware and Software sectors of the Tech industry. Exhibit 1 shows that the two sectors diverged a bit in 2024, but by April 2025, when the US had announced and paused reciprocal tariffs, the FTSE All-World Software and Hardware sectors had almost identical returns for the period 31 March 2023 – 8 April 2025 (37% vs 35%). However, soon after, the two sectors began to rapidly diverge, with Hardware outperforming Software by 171% to 72% by February 2026 for the full period. This differentiation is due to a maturing of the AI narrative and has interesting implications for returns within technology and related sectors globally. Exhibit 1: FTSE All-World Software and Hardware sector cumulative returns (USD, reb...