Valuation Divergence in Tech: Hardware's Resurgence vs. Software's Correction

The technology sector, long characterized by its rapid innovation cycles and volatile valuations, has entered a new phase of divergence between hardware and software segments. From 2023 to 2025, hardware and semiconductor firms have outperformed their software counterparts in valuation metrics, driven by AI-driven demand and tangible earnings, while software companies face a post-pandemic recalibration of expectations. This shift reflects deeper structural changes in business models, macroeconomic dynamics, and investor sentiment, offering critical insights for investors navigating the sector's evolving landscape.

Hardware's Rebound: Capitalizing on AI and Infrastructure Demand

Hardware and semiconductor companies have emerged as beneficiaries of the AI boom, with valuation multiples expanding despite the sector's traditionally capital-intensive nature. By 2025, EBITDA multiples for hardware firms ranged between 11.3x and 12.8x, while revenue multiples hit 3.4x-figures that outpace software segments like SaaS and cybersecurity, which traded at 3.1x–3.2x revenue multiples. This premium reflects the market's recognition of hardware's foundational role in enabling AI infrastructure. Global spending on data center systems, for instance, is projected to grow 15.5% in 2025, reaching $367 billion, as enterprises scramble to deploy AI-optimized servers and GPUs.

The sector's momentum is further underscored by forward-return estimates. Hardware stocks, particularly those tied to AI chips and cloud infrastructure, have attracted "Strong Bullish" ratings at higher rates than software and IT services. Nvidia, a bellwether for the hardware space, trades at a P/E ratio of 53.15. Meanwhile, server sales are expected to nearly triple from 2023 to 2028, driven by generative AI's insatiable demand for computational power.

Software's Valuation Correction: Profitability Over Hype

In contrast, software companies-once the darlings of the 2020s-have faced a sobering reality check. Median EV/Revenue multiples for software firms in H1 2025 stood at 2.6x, a sharp decline from the 6.7x peak in 2021. This correction aligns with a broader shift in investor priorities: cash flow and sustainable margins now outweigh speculative growth narratives. Private software companies, for example, traded at a median EV/EBITDA of 17.6x in 2025, but their revenue multiples (2.0x) lagged behind hardware peers, signaling a preference for profitability over top-line expansion.