Key facts
- Software stocks have rebounded, with the iShares Expanded Tech-Software Sector ETF up 42% from its April low.
- Investors believe AI will benefit, not harm, the software sector.
- The software ETF is down under 2% year-to-date after a prior 30% decline.
- Companies integrating AI and adopting usage-based pricing models are favored.
- Nvidia CEO Jensen Huang predicts AI agents will increase software demand.
Software stocks have rebounded from a punishing selloff, with investors betting that artificial intelligence (AI) may boost the sector rather than destroy it. The iShares Expanded Tech-Software Sector ETF has surged nearly 42% from its April low, turning fears into hopes that software firms will enlist AI as a valuable ally. The ETF is now down under 2% for 2026 after earlier falling 30%. Investors are flocking to firms they see succeeding at integrating AI and adjusting price models by charging clients based on actual usage, while steering clear of firms too dependent on traditional subscription fees. Analysts point to companies like Datadog, Palo Alto Networks, Synopsys, Oracle, and Microsoft as favorites. Nvidia CEO Jensen Huang stated that AI agents will boost software demand, making it an incredible time to be a software company. However, the software ETF fell 2.8% on Tuesday, with Salesforce experiencing a 4.2% pullback amid excitement about its role as a major investor in and user of Anthropic. Many investors emphasize the importance of choosing the right stocks for the long haul, favoring companies with usage-based pricing or strong AI integration like Datadog, Palo Alto Networks, Oracle, and Microsoft.