The Nasdaq closed higher. The S&P gained. Chips led everything. The iShares Semiconductor ETF (SOXX) surged more than 5%. Micron (MU) jumped 7% after announcing a $3 billion US supply chain investment. Sandisk (SNDK) popped 12%.

But underneath the headline gains, the rotation widened. Salesforce (CRM) dropped after a brutal KeyBanc downgrade. IBM (IBM) fell in sympathy. Palantir (PLTR) dropped more than 3%. The software layer of the AI trade had a rough day while the chip layer ran.

The equal-weight S&P 500 is now outperforming the cap-weighted index for the year. That means the 493 stocks outside the Magnificent Seven are collectively carrying more weight than the top seven. The great rotation is no longer a theory.

Chips are back but software is getting questioned. The two halves of the AI trade are moving in opposite directions. Own the hardware. Be selective on the software until revenue proof arrives.

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KeyBanc downgraded Salesforce (CRM) to sector weight from overweight. The note was blunt. Customers say their data is not organized enough to do meaningful AI work. Agentforce, Salesforce's flagship AI product, just isn't there yet as a product.

That is a specific and damaging finding. Salesforce has been selling Agentforce as the proof that AI builds on top of software revenue rather than replacing it. If the product is not landing with customers, that entire thesis gets questioned.

IBM (IBM) and Palantir (PLTR) fell in sympathy. Software stocks broadly underperformed on a day when chips surged. That divergence is the market drawing a line between hardware that is already generating AI revenue and software that is still trying to prove it can.

Microsoft (MSFT) earnings later this month become even more important after today. Copilot is Microsoft's Agentforce equivalent. If Salesforce's product isn't landing, the question immediately becomes whether Copilot is.

The KeyBanc note is the clearest warning in enterprise software this quarter. Reduce names where AI revenue is still a promise. Own names where it is already in the numbers.

The S&P 500 equal-weight index is up more than 10% this year. The cap-weighted version is up less than that. The biggest companies in the index are dragging it down while everything else is quietly climbing.

This has not happened before during an AI-driven rally. Usually when AI runs, the Magnificent Seven carry the index and leave everything else behind. That dynamic has reversed. The Mag Seven ETF (MAGS) fell while the rest of the market gained.

The reason is the rotation. Healthcare had its best week in years recently. Financials hit records. Industrials are climbing. Energy is bid on oil. All of that is showing up in the equal-weight math and it tells you the bull market is broadening, not narrowing.

For passive investors in cap-weighted index funds, this is an invisible problem. They are getting less of the rally than they think.

Equal-weight exposure is outperforming for the first time in years. The broadening is real. Add exposure to sectors outside mega-cap tech before this gap widens further.

But one market statistic — praised by Warren Buffett as the best measure of valuations — is now flashing a historic warning.

It’s currently higher than it was at the peak of the Dot-Com Bubble.

If the signal proves accurate, the coming AI unwind could shake the entire market.

See the alarming stat — and what investors should do before the next crash unfolds.

Apollo's Torsten Slok published a note that laid out the AI bear case in plain language. Token prices are falling. Chinese AI models are gaining share. Hyperscaler free cash flow expectations may be too optimistic. If Magnificent Seven earnings disappoint, the pain cannot stay contained. It spreads to chips, power, data centers, and then the whole S&P.

This is not a fringe view. Apollo manages over a trillion dollars. When its chief economist publishes a note saying AI profits might come too late to justify the spending, that framing enters the institutional conversation permanently.

The timing matters. Hyperscaler earnings start in two weeks. Google, Microsoft, Meta, and Amazon all report. Every one of those prints is now being read against Apollo's warning. One disappointing capex guide and this note gets cited on every earnings call.

Watch hyperscaler capex guidance more than earnings beats. Revenue can beat and the stock can still fall if capex keeps rising without a clear revenue payoff timeline. That is the setup Apollo is flagging.

Jobless claims came in at 215,000, below the 218,000 estimate. The labor market is still firm. That is the Fed hawks' strongest argument. A tight labor market with WTI above $71 and services inflation above 4% is exactly the setup where September becomes a live hike meeting.

Existing home sales dropped 2.4% in June against expectations of a 0.7% gain. The housing market cannot find its footing. Mortgage rates are still elevated. The May jump was a head fake. Until rates come down meaningfully, transaction volume stays frozen and the housing recovery stays theoretical.

Netflix (NFLX) reports after the close. Citi cut its price target to $100 from $115. The stock is down 20% this year. Ad-supported tier growth is the only number that changes the narrative. If ad revenue is accelerating, the multiple rerates. If not, it is another quarter of waiting.

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The session confirmed the rotation is real and broadening. Semis surged. Salesforce got demolished. The equal-weight S&P beat the cap-weighted version again. Apollo warned the AI profit timeline might be too optimistic.

SK Hynix prices tonight. That number either validates the memory trade or questions it. Netflix reports tonight. That print either saves software or adds to its problems.

The market is splitting into pieces. The question heading into next week is whether the pieces hold their new positions when hyperscaler earnings arrive.