Software Stocks Defy Death Knell as AI Fuels Growth

Investors who wrote off software stocks as being replaced by AI have been proven wrong. The latest earnings season shows that software companies are not going anywhere, with some even benefiting from the rise of artificial intelligence.

In February, a fear psychosis gripped investors when Anthropic's launch of new plugins for its Claude Cowork system sparked a global selloff in software firms. The US markets alone lost $300 billion in market value in a day. However, the latest earnings season has shown that AI is not replacing software companies but rather fueling their growth.

The iShares Expanded Tech-Software Sector ETF (IGV) broke into positive territory on a year-to-date basis, powered by a strong earnings beat from software bellwether Salesforce. The ETF is up about 10% in the last one month. Snowflake shares surged nearly 25% after the company raised its annual product revenue forecast, with AI offerings accounting for approximately half of the acceleration.

ServiceNow and Workday are also benefiting from the shift in sentiment. ServiceNow's AI platform has seen widespread adoption across the public sector, while Workday is embedding AI across its platform to automate tasks and increase efficiency for customers.