Software Stocks Poised for Comeback as AI Development Slows
The dominance of Nvidia in the AI boom is well-documented, but what's next? The iShares Expanded Tech-Software Sector ETF (IGV) may hold the key to the next phase of the AI trade.
A slowdown in AI development and security concerns have led to a reversal in fortunes for software stocks. Over the past three months, they've significantly outperformed other sectors, including semiconductors, which were previously leading the charge.
The sector that lagged behind was software, with many investors fearing it would become irrelevant due to AI and tools like Claude Code. However, a slowdown in AI development could turn software stocks into leaders, as several prominent AI company executives have suggested.
Cybersecurity companies, such as CrowdStrike (CRWD), Cloudflare (NET), and ZScaler (ZS), have seen huge returns due to growing concerns about security protocols keeping up with the pace of AI development. This creates a bullish investment case for software, which is now outperforming the broader market.
The iShares Expanded Tech-Software Sector ETF has been a beneficiary of this trend, and its performance over the past quarter suggests that it may be poised to continue leading the charge in the next phase of the AI trade.