Softer-than-expected U.S. inflation data drove a rotation within technology stocks on Wednesday, with software and mega-cap technology outperforming semiconductor funds. The iShares Expanded Tech-Software Sector ETF (BATS:IGV) gained around 2%, while the iShares Semiconductor ETF (NASDAQ:SOXX) slipped 0.2% before recovering marginally. The Nasdaq Composite rose more than 1%, and the S&P 500 gained around 1%. August headline Personal Consumption Expenditures (PCE) inflation increased 3.4% year over year, below economists’ 3.7% forecast, while core PCE rose 3% annually. Markets subsequently reduced expectations for an October Federal Reserve rate hike, supporting growth stocks whose valuations are sensitive to future earnings and cash flows. IGV, which tracks North American software companies and selected interactive media and services firms, had 106 holdings as of Sept. 24 and a 0.38% expense ratio. Its largest positions included Palo Alto Networks, Palantir Technologies Inc, CrowdStrike Holdings Inc, Microsoft Corp and Oracle Corp. The fund had risen about 38% over the previous six months as investors focused on companies converting artificial intelligence adoption into software revenue and profits. SOXX held 30 semiconductor companies and had a 0.33% expense ratio, with major positions including Intel Corp, Advanced Micro Devices Inc, Micron Technology Inc, Nvidia Corp and Broadcom Inc. Its performance is more directly linked to the AI-chip and semiconductor infrastructure cycle. The divergence suggests that softer inflation did not produce a uniform technology rally. If expectations for Federal Reserve policy continue to ease, software could remain a key beneficiary, while semiconductor ETFs remain more closely tied to AI infrastructure spending, chip demand and earnings expectations.