Software Stocks & ETFs: Is the AI Sell-Off Over?

Software stocks have rebounded strongly over the past month, driven by blockbuster earnings from sector leaders and easing fears over AI-related disruptions.

Microsoft (MSFT) stock surged 16% after its results demonstrated that massive AI investments are paying off. Its one-day market capitalization gain of $450 billion marked the largest single-day increase by any US company in history.

Palantir’s (PLTR) revenue nearly doubled in the second quarter, and the company raised its full-year revenue outlook. The stock has surged almost 50% since reporting what CEO Alex Karp described as “otherworldly” results.

Salesforce (CRM) jumped 23% in its best day since 2020 after reporting strong earnings and expanding its partnership with Anthropic to deepen AI integration across its product suite.

CrowdStrike (CRWD) rose more than 20% after raising its guidance on increased demand spurred by AI-related cybersecurity risks, while peers like Palo Alto Networks, Okta, and ServiceNow also posted solid gains.

Earlier this year, investors aggressively sold software shares over concerns that emerging AI technology would disrupt traditional business models. The sell-off accelerated following the release of new productivity tools from leading AI labs like Anthropic and OpenAI.

Software-as-a-Service (SaaS) providers were hit especially hard during the downturn as markets questioned long-term demand for standard seat-based subscriptions.

Industry analysts note that while smaller niche players face real disruption risks, established software leaders remain well-positioned. Enterprise clients are deeply integrated into their ecosystems, and these incumbents hold massive troves of proprietary data.

Furthermore, these firms are deploying generative AI internally to enhance platform capability and lower operational costs.

After months of heavy concentration in semiconductor stocks, capital has begun rotating back into software as valuations became too attractive to ignore.

The iShares Expanded Tech-Software Sector ETF (IGV) holds North American companies in the software industry.

The SPDR S&P Software & Services ETF (XSW) tracks a modified equal weighted index of software and services stocks.

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This article originally published on Zacks Investment Research (zacks.com).

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