Key Takeaways
- Software equities continue to significantly underperform the S&P 500, which has reached fresh record highs
- IGV, the iShares Expanded Tech-Software Sector ETF, remains down 22% year-to-date despite posting impressive weekly gains
- Major names like Oracle climbed 24% this week, while Microsoft and Palantir rose 11%, yet all trade significantly lower for 2026
- Emerging AI platforms from OpenAI and similar companies are creating existential concerns about legacy software revenue models
- Market technicians maintain the sector remains in bearish territory and caution against premature entry
The software sector has staged an impressive rally in recent trading sessions, yet market strategists remain divided on whether the worst is behind this battered industry segment.
IGV, the iShares Expanded Tech-Software Sector ETF, has climbed over 11% across the last three trading days—marking its strongest three-session performance since the pandemic-era volatility of March 2020. Despite this bounce, the ETF continues to trade 22% below its 2026 starting point and recently touched levels not seen since November 2023.
Oracle has emerged as a standout performer, rocketing approximately 24% higher this week. [[LINK_START_1]]Microsoft[[LINK_END_1]] and [[LINK_START_2]]Palantir[[LINK_END_2]] have each posted gains near 11%. Yet context matters: Oracle still sits 12% underwater for the year, while Microsoft has shed 15%, positioning it among the weakest constituents of the Magnificent Seven cohort.
Meanwhile, the broader S&P 500 has reclaimed all-time peak levels, advancing roughly 1.8% since late February. The divergence between software and the broader market has rarely been more pronounced.
The Forces Behind Software’s Underperformance
At the heart of the selloff lies investor anxiety about disruption. Market participants increasingly worry that artificial intelligence platforms from organizations like [[LINK_START_4]]OpenAI[[LINK_END_4]] and Anthropic could commoditize traditional software offerings and erode competitive moats. This uncertainty has systematically compressed valuations throughout the industry.
The S&P North American Expanded Technology Software Index currently commands approximately 21 times forward earnings—a dramatic decline from nearly 40 times just last July and substantially beneath its decade-long average of 34 times.
Individual stocks tell an even more striking story. Salesforce now fetches just 13 times projected earnings, compared to its 10-year norm of 45 times. Adobe has plummeted below 10 times forward estimates, down from a historical average of 30 times. Adobe has also surrendered 30% of its value in 2026.
Notably, prominent investor Michael Burry recently revealed stakes in multiple software companies, including Veeva Systems, Autodesk, and Adobe. Some market observers interpret these positions as a bullish signal.
Wall Street’s profit projections for the sector have also begun trending upward. Software and services earnings are now anticipated to expand 16.5% in 2027, up from the 15.7% growth rate forecasted at February’s conclusion.
Diverging Opinions on Entry Points
Despite attractive valuations, skepticism persists. Brad Conger of Hirtle Callaghan stated he has no interest in attempting to identify a sector bottom, regardless of how compelling the discounts appear. Others emphasize that businesses appearing insulated today could face unexpected AI-driven competition tomorrow.
Technical analysts also recommend patience. Adam Turnquist from LPL Financial observed that the sector continues trending downward and faces significant “technical damage to repair.” He specified that establishing a 50-day moving average base and constructing a series of ascending lows would be prerequisites before confirming a sustainable floor.
Paul Hickey and Justin Walters from Bespoke Investment Group characterized current buying opportunities as potentially “catching a falling knife” this week.
The S&P North American Technology Software Index has established support around the 1,600 threshold. According to Turnquist’s analysis, a decisive move above 1,908 could indicate a double-bottom breakout pattern.
Bloomberg Intelligence projects that profits across software and services enterprises will grow 16.5% in 2027.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
