Introduction

The title of this week's report, Remember the Titans, is a nod to the classic football movie, but it also captures an important dynamic developing beneath the surface of today's market. While investors remain fixated on the current generation of AI winners, many of the market's former champions are quietly reclaiming leadership. Names like Cisco, Nokia, Dell, and other technology stalwarts that defined prior market cycles are beginning to outperform after spending years in the wilderness.

Bull markets have a tendency to broaden as they mature. Leadership expands, capital rotates, and yesterday's winners often get a second act. Improving fundamentals, attractive valuations, and renewed investor interest have created the backdrop for many of these former titans to reemerge. Whether this proves to be a lasting trend remains to be seen, but it serves as a reminder that market leadership is rarely permanent.

Of course, the market's brightest spotlight remains firmly fixed on Semiconductors. The group has surged roughly 70% in just two months and remains the best-performing sector in the S&P 500 by a wide margin this year. Within the space, Memory stocks continue to lead the charge, underscoring that the AI trade remains alive and well even as participation broadens elsewhere.

We have discussed the market's narrow leadership at length, and a large part of that story continues to be the Semiconductor complex. Roughly 70% of the S&P 500's gains this year can be attributed to just 10 stocks (GOOG is counted twice in this analysis), and 13 of the top 20 contributors are Semiconductor-related names. In other words, while the index itself continues to make headlines, much of the heavy lifting is still being done by a relatively small group of stocks concentrated in a single theme.

Case in point, below is the S&P 500 with the Mag 7 stripped out. Parabolic, if you ask us. The narrative has been that the Mag 7 has carried the market, but that's no longer entirely true. Much of the baton has been passed to the broader Semiconductor complex, which continues to dominate performance tables. The market may be broadening, but leadership remains heavily concentrated in one theme: AI infrastructure.

Ex-Mag 7 Index: 8 of the top 10 contributors are Semiconductor stocks. The market may be broadening, but Semis remain the engine driving performance.

Some of these leaders are the stalwarts of yesteryear. The AI infrastructure buildout has created demand across the entire technology stack, reviving many of the market's former champions. The latest rally has swept up iconic 1990s technology names, including several members of the "Four Horsemen"—the predecessor to today's Magnificent Seven.

This brings us to our most important point: Software.

For much of the year, growth investors have faced a stark divide: AI winners and AI losers. If you landed in the latter camp, your stock likely endured relentless selling pressure. If you landed in the former, investors could not buy enough.

Interestingly, the same dynamic now driving capital back into the old titans of technology is beginning to challenge the prevailing narrative that AI will consume all of software. This is a theme we have discussed throughout the year. While AI will undoubtedly create winners and losers, we have consistently argued that the reality of software disintermediation likely lies somewhere between the bullish and bearish extremes.

As technicians, our job is not to identify which software companies ultimately win the race. Our job is to identify opportunity when the market misprices risk and reward. That is precisely why we highlighted the group as investable again in our 5/10 report.

The excerpt below is from that report:

Our call to look for alpha in Software has over-delivered. Since our 5/10 report, the Software ETF (IGV) has outperformed the S&P 500 and Russell 2000 by roughly 5x, the Nasdaq 100 by 4x, the Mag 7 Index by 8x, and even doubled the return of Semiconductors.

Not only did we identify the recent rotation into Software, but we also called the April 7th peak in oil, which ultimately declined 31% from its high.

We also called the March stock market low (+20% peak-to-trough for the S&P 500).

Did you bring an umbrella? Because it's raining alpha.

Enough of that. We hope the results speak for themselves.

The S&P 500 has now risen for nice consecutive weeks, leaving many underinvested investors struggling to catch up. Lockout rallies can be painful to chase, but opportunities remain for those willing to look beyond the obvious.

Next week begins a new month, and with it the potential for new leadership and new trends. Our job is to identify them early.

Time to check the charts.