U.S. software stocks headed toward their fourth consecutive session of gains on Tuesday, attempting a comeback after being battered for much of the year on fears of disruption from artificial intelligence.
The beleaguered sector’s rebound coincided with a slide in chipmakers, which began to cool off following a blistering rally that took the Philadelphia SE Semiconductor Index to a record high earlier this month. The iShares Expanded Tech-Software Sector ETF rose 1.1 per cent, hitting its highest level since January.
Workday WDAY-Q, ServiceNow NOW-N and Salesforce CRM-N rose between 3.7 per cent and 4.3 per cent. Cybersecurity firms CrowdStrike CRWD-Q, Okta OKTA-Q, SailPoint SAIL-Q and Zscaler ZS-Q gained between 1.2 per cent and 2.5 per cent.
The gains hint at a possible shift in investor sentiment as markets reassess software stocks following a painful valuation reset.
A sustained rebound would suggest that markets are becoming more selective, distinguishing between companies genuinely at risk of being disrupted by AI and those that could ultimately benefit through higher productivity, new products and stronger customer demand.
The divergence was on display on Monday, with analysts at BofA Global Research giving ServiceNow a “buy” rating, while reinstating Salesforce with an “underperform.” ServiceNow is “difficult to challenge” because it is “too entrenched” in large enterprise workflows, they said. Salesforce, however, faces what the analysts called “a structural shift that permanently impairs Salesforce’s business model.”
Still, the rally may need to extend further to convince skeptics. Investors are likely to demand clearer evidence that software companies can defend their profit margins and business models from the competitive threat posed by AI.
The iShares Expanded Tech-Software Sector ETF has lost 12.2 per cent so far this year as of Monday’s close. The S&P 500 software and services index is also down 13.7 per cent.