U.S. software stocks headed toward their fourth consecutive session of gains on Tuesday, attempting a comeback after being battered for much of the year on fears of disruption from artificial intelligence. According to reports from Reuters, the iShares Expanded Tech-Software Sector ETF rose 1.1%, hitting its highest level since January before paring gains. Major software companies including Workday, ServiceNow, and Salesforce rose between 3.7% and 4.3%, while cybersecurity firms CrowdStrike, Okta, SailPoint, and Zscaler gained between 1.2% and 2.5%. The Amplify Cybersecurity ETF touched an all-time high and was last up 0.6%, highlighting the broad-based nature of the sector's recovery attempt.
The gains hint at a possible shift in investor sentiment as markets reassess software stocks following a painful valuation reset. As reported by Reuters, Gregg Moskowitz, senior enterprise software analyst at Mizuho, noted that "We continue to see some very attractive investments in software for those investors who can afford to be somewhat patient." A sustained rebound would suggest that markets are becoming more selective, distinguishing between companies genuinely at risk of being disrupted by AI and those that could ultimately benefit through higher productivity, new products and stronger customer demand. The divergence was on display on Monday, with analysts at BofA Global Research giving ServiceNow a 'buy' rating, while reinstating Salesforce with an 'underperform' rating.
According to BofA Global Research analysts cited in Reuters, ServiceNow is 'difficult to challenge' because it is 'too entrenched' in large enterprise workflows. However, they noted that Salesforce faces what they called 'a structural shift that permanently impairs Salesforce's business model'. Anthony Saglimbene, chief market strategist at Ameriprise Financial, explained that "The market is drawing a clear line between companies that rely heavily on traditional per-seat subscriptions and those positioned closer to the center of the AI buildout." The analysts' differentiated approach reflects the varying AI disruption risks across different software segments and business models.
The rally may need to extend further to convince skeptics, as reported by Reuters. Investors are likely to demand clearer evidence that software companies can defend their profit margins and business models from the competitive threat posed by AI. The iShares Expanded Tech-Software Sector ETF has lost 12.2% so far this year as of Monday's close, while the S&P 500 software and services index (.SPLRCIS) is also down 13.7%, highlighting the significant year-to-date decline that the current recovery attempts to reverse. The beleaguered sector's rebound coincided with a slide in chipmakers, which began to cool off following a blistering rally that took the Philadelphia SE Semiconductor Index (.SOX) to a record high earlier this month.
