Key facts
- US software stocks are trading at fresh 2026 highs.
- The S&P 500 software and services index rose 1.3% on Tuesday to its highest level since November 2025.
- The sector's expected annual earnings growth rate for 2026 has increased to 20.6% from 13.8% in March.
- Cybersecurity stocks have achieved triple-digit percentage gains this year.
- Analysts suggest fears of AI-led disruption in the software sector were largely overstated.
- The software index lost over 26% from late January to April.
US software stocks are reaching fresh highs for 2026, driven by increasing earnings expectations that suggest concerns about artificial intelligence disrupting the sector have been largely overstated. The S&P 500 software and services index climbed 1.3% on Tuesday to its highest point since November 2025, following its largest quarterly gain since the second quarter of 2020.
Strong earnings from companies like Salesforce, ServiceNow, and Accenture, coupled with AI partnerships, have supported the sector's recovery, which began in late June. Cybersecurity stocks have been particularly strong performers, with Crowdstrike, Fortinet, and Palo Alto Networks achieving triple-digit percentage gains this year as businesses increase spending on security in the AI era.
"AI has been more of an enabler for a lot of these software companies, more than a disruptor," said Adam Turnquist, chief cross-asset strategist at LPL Financial. "We're seeing more of a trend change now where software has recaptured the leadership reins, and we think there's a window here for outperformance in software over semiconductors."
The software index has risen 5% this year, while the Philadelphia SE Semiconductor index has surged 87.5% in 2026, though it has retreated from its peak. According to LSEG data, the sector's expected annual earnings growth rate for 2026 has risen to 20.6%, up from 13.8% at the end of March.
Fears of a "SaaSpocalypse," where companies might build applications in-house more cheaply using AI, led to a more than 26% selloff in the software index from late January to April. However, analysts now believe these fears were premature. "The whole SaaSpocalypse didn't happen anywhere near as fast as some of the people on Wall Street thought it would," said Rebecca Wettemann, CEO of technology research firm Valoir, noting that vendors are seeing customer adoption of AI move beyond experimental stages.
Despite the positive outlook, risks remain due to the rapidly evolving nature of AI technology and its potential to disrupt business models. Brian Mulberry, chief market strategist at Zacks Investment Management, suggested that the true test for software stocks might come in the second half of 2027, when increased data center capacity could make AI coding a more significant threat to traditional software firms.