Wall Street Says Forget AI Chips, and Buy AI Software Stocks Instead for 2026

By Chris Neiger – Mar 1, 2026 at 11:00PM ESTKey PointsAn HSBC analyst thinks this year is the time to focus on AI software stocks.But Nvidia's recent financial results prove AI hardware companies aren't done growing.Spreading your investments across both hardware and software stocks is probably the best strategy.If you've been confused about the share price movements of some artificial intelligence (AI) stocks, join the club. Investors have been on a treasure hunt lately, seeking tech companies poised to benefit from massive AI disruption, but no one can really agree on what that looks like. Some think hardware-based companies will remain the leading AI stocks, while others are opting for software. A recent HSBC report leans toward the latter. An analyst at the bank, Stephen Bersey, said recently that 2026 will be "the kick-off for monetization within software" for AI and the largest long-term share of value is in AI software, not hardware. Here's why it's probably best to have a little of both. Image source: Getty Images. The case for AI software stocks Bersey presents the case that enterprise software is not only deeply embedded in corporate operations but is also nearly error-free and highly reliable. This is, obviously, very important to companies that depend on software to run their businesses well. And it's in contrast to the more free-wheeling AI chatbots from OpenAI, Anthropic, and others that can be helpful, but also error-prone. He mentioned on a podcast that people once worried that Microsoft would lose its dominance in enterprise software because Alphabet's (GOOGL +1.43%) (GOOG +1.39%) Google Workspace offered a free version of similar software tools. Instead, Microsoft software has continued to thrive, with Productivity and Business Process Software sales rising 16% to $34 billion in the most recent quarter and the company having 400 million Office 365 users. ExpandNASDAQ: GOOGLAlphabetToday's Change(1.43%) $4.38Current Price$311.76Key Data PointsMarket Cap$3.8TDay's Range$303.80 - $312.3752wk Range$140.53 - $349.00Volume45MAvg Vol34MGross Margin59.68%Dividend Yield0.27% For its part, Alphabet has made huge strides in AI with its Google Gemini chatbot reaching 750 million monthly active users, and the company scored a multibillion-dollar deal for Gemini to serve as the underlying AI model for upcoming versions of Apple's Siri. And Alphabet continues to benefit from more customers using AI by selling additional cloud services, leading to its cloud revenue rising 48% to $17.7 billion in the most recent quarter. Should investors avoid AI hardware stocks? Investors are understandably confused about whether software or hardware will benefit most from AI. But instead of picking a side, I'll offer up the suggestion: Why can't it be both? Nvidia (NVDA 4.43%) recently reported its Q4 fiscal 2026 results in which data center revenue surged 75% higher to $62.3 billion and adjusted earnings per share popped 82% to $1.62. Those are very impressive results that outpaced Wall Street's consensus estimates, and more growth is likely on the way. Nvidia's management issued total revenue guidance of $78 billion for the first quarter, an increase of 77%. ExpandNASDAQ: NVDANvidiaToday's Change(-4.43%) $-8.20Current Price$176.69Key Data PointsMarket Cap$4.3TDay's Range$176.56 - $182.5852wk Range$86.62 - $212.19Volume11MAvg Vol174MGross Margin71.07%Dividend Yield0.02% Even if you think some AI hardware stocks are played out, others are still scoring big wins. Nvidia competitor Advanced Micro Devices just announced a deal valued at more than $100 billion with Meta Platforms to buy 6 gigawatts of data center processors from AMD, with Meta potentially owning as much as 10% of AMD. With Nvidia estimating data center spending could reach between $3 trillion and $4 trillion of annual infrastructure spending by 2030 and Alphabet already ramping up capital expenditures to up to $185 billion this year (mostly for AI infrastructure), Nvidia and AMD aren't finished benefiting from hardware investments. I understand the concern that, at some point, the spending spree currently underway for AI hardware will slow. But trying to call the end early is a mistake. And even when it slows down, the spigots won't turn off entirely. Tech companies are likely locked into a many-years-long AI race that will be built on the advanced chips made by Nvidia and AMD. Don't write off entire tech segments just yet I think it's premature to rotate out of hardware stocks and pivot to software stocks this early in the AI stage. Paring back some holdings in order to spread some money around is probably a better bet. That means owning a little of Nvidia, as well as Alphabet, is probably a wise move right now as AI continues to take shape.Read NextMar 1, 2026 •By Daniel Foelber3 Reasons Why Nvidia Stock Is Still Undervalued and Worth Buying in MarchMar 1, 2026 •By Geoffrey SeilerThe 4 Biggest Tech Companies Will Spend $655 Billion on AI This Year. Here's How I'm Investing.Feb 28, 2026 •By Beth McKenna7 "Rules" to Improve Your Stock Investing in 2026 and Beyond: Using Nvidia, Palantir, Netflix, Peloton, and Super Micro Computer Stocks as ExamplesFeb 28, 2026 •By Jeremy BowmanIs Nvidia a Buy on the Post-Earnings Dip?

This Number Screams "Yes"Feb 28, 2026 •By Keithen DruryWhere Will Nvidia Be in 2030?Feb 28, 2026 •By Matt Frankel, CFPHere's Why Nvidia Stock Fell -- Even After Reporting 73% Revenue GrowthAbout the AuthorChris Neiger has been a contributing Motley Fool technology and automotive analyst since 2012.

Before The Motley Fool, Chris was an automotive journalist for the BBC. He holds a master’s degree in journalism from Regent University and a bachelor’s degree from the University of Delaware.TMFNewsieStocks MentionedNvidiaNASDAQ: NVDA$177.19(-4.17%)-$7.70AlphabetNASDAQ: GOOGL$312.00(+1.50%)+$4.62AlphabetNASDAQ: GOOG$311.43(+1.39%)+$4.28*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.