Software Stocks Stage Comeback Amid AI-Driven Growth
Software stocks have staged a remarkable comeback after a brief period of turmoil earlier this year. The sector was hit hard by fears that advances in AI would replace software firms, leading to a global selloff in February that wiped out $300 billion in US market value.
However, the latest earnings season has shown that software companies are not going anywhere. In fact, AI is helping the industry rewrite its next growth story.
Late last month, 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 Salesforce. The ETF is up about 10% in the last one month.
Other software companies, such as Snowflake and ServiceNow, have also reported impressive results, with AI driving growth and adoption of their products. Snowflake's shares surged nearly 25% after the company raised its annual product revenue forecast, while ServiceNow's CEO said he had not seen any change to sales cycles from increased hardware and AI spending.
The resurgence in software stocks is also being driven by a growing recognition that companies with proprietary data, deeply embedded workflows, and large installed customer bases may be harder to replace than smaller software providers whose products can be replicated by AI models.