Software Stocks Surge: Salesforce Leads Charge as Sector Continues Rapid Shift

Software stocks are on the rise, with Salesforce (CRM) surging roughly 20% after earnings and CrowdStrike (CRWD) jumping close to 20%. The moves exemplify a software rally that has flipped the script on beaten-down chip stocks. However, leadership within the sector has been changing rapidly.

Cybersecurity led the initial leg off the June lows but faded badly in August before rebounding Thursday. Vertical software, which builds tools for specific industries, has been less dramatic and more persistent, with a median return of nearly 60% since June 22.

Analysts were still raising sales expectations for major cybersecurity companies despite the stocks cooling off, keeping the group in play. The First Trust Nasdaq Cybersecurity ETF (CIBR) pulled back toward its 50-day moving average after Thursday's rebound erased a big chunk of the damage.

A stronger setup tends to combine persistent price strength, improving sales expectations, strong free cash flow, and a favorable risk-reward price. Four software stocks are worth watching: AppFolio (APPF), Toast (TOST), Tyler Technologies (TYL), and Adobe (ADBE).