The market's first half was a tale of two tickers — one printing record gains, one printing apology letters. While the S&P 500 gained 8.7% through June, AI infrastructure leaders surged to new highs as many software names struggled under lofty expectations. With the second half now underway, investors are looking for the market's next leaders.

Winners and losers: Semiconductor and computer hardware companies dominated the S&P 500 in the first half as repeated earnings-estimate upgrades fueled the rally. All 10 of the index's best-performing stocks came from the technology sector, while 17 of the top 20 were tech names. Conversely, software and internet companies moved the other way as investors focused on AI disruption despite broadly solid fundamentals.

• SandiskSNDK
  led the S&P 500 with a 764% gain, while Micron TechnologyMU
  rose 301% and trades at 8.1x forward earnings.
• IntuitINTU
  led the S&P 500's biggest decliners, dropping 60% despite posting 10% revenue growth and another 10% increase in analysts' 12-month EPS estimates.

The Second Half Setup

The second half may hinge on the market's view of the Fed. Bank of America is among the forecasters expecting as many as three Fed rate hikes by December. Yet the Dallas Fed's trimmed-mean PCE, which strips out extreme price swings, is running at 2.4%, well below the 4.1% reading for core PCE. If those hikes never materialize, rate-sensitive sectors such as real estate, utilities, and technology could have room to reprice higher.

• Bank of America highlighted EastGroup PropertiesEGP
  , citing continued data center development as a potential tailwind.
• The bank also sees further upside for MKSMKSI
  , naming the 145% YTD gainer its top H2 SMID-cap pick on AI chip demand.

The verdict: Energy led all S&P 500 sectors with an 18.7% gain in the first half, followed by industrials at 17.9%. Meanwhile, software companies saw their valuations compress sharply despite continued revenue growth. William Blair analyst Arjun Bhatia said the fundamentals for many software companies have remained "solid," even as investors reassessed the sector's long-term outlook. The AI infrastructure trade still has legs, but the second half's alpha may live in the stocks the first half left behind.