Software stocks stage third-quarter rebound as AI fears ease

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Software stocks Q3 rebound

Highlights

iShares Expanded Tech-Software Sector ETF gains 17% in Q3 while iShares Semiconductor ETF falls 11%, highlighting software's outperformance.
Salesforce rallies 46%, Microsoft 37%, Workday 55%, Veeva 60%, and CrowdStrike 39% as fading AI disruption fears drive investor confidence in enterprise software.
Corning declines nearly 40% and Caterpillar drops 24% amid profit-taking, while the Federal Reserve's September rate hike increases pressure on rate-sensitive stocks.

Software rebound reshapes tech market leadership

As reported by CNBC, Jim Cramer says enterprise software’s comeback is the defining stock market story of the third quarter, with investors becoming less concerned that artificial intelligence will upend traditional business models. The major averages post only modest gains in the quarter, which ends Wednesday, but sector performance diverges sharply beneath the surface.

The iShares Expanded Tech-Software Sector ETF rises 17% during the quarter, while the iShares Semiconductor ETF falls 11%. Cramer says the period is likely to be remembered as the moment software bounced back while several high-flying data center plays gave way to profit-taking.

Salesforce is among the biggest winners, rallying 46% as investors grow more confident that AI can support growth rather than threaten its business. The company unveils Claudeforce, including a plugin that allows customers to use Anthropic’s Claude to access Salesforce data and carry out tasks such as drafting emails and updating records.

Microsoft gains 37% in the quarter, and Cramer says the stock still has further upside, citing demand for Copilot, faster Azure growth, and early returns from data center investments. Workday and Veeva also advance 55% and 60%, respectively, as concerns over AI disruption fade, while CrowdStrike rises 39% as cybersecurity remains a strong area of demand.

Rate concerns temper outlook for new quarter

Some earlier data center winners lose momentum in the quarter even as Cramer describes parts of the pullback as a buying opportunity. Corning falls nearly 40% after a massive run, while Caterpillar drops 24%, with Cramer noting that Caterpillar’s engines are becoming a growing source of data center power.

Looking ahead, Cramer says the biggest risk for equities is the effect of higher interest rates. The Federal Reserve raises its benchmark rate by a quarter percentage point in September, adding pressure on rate-sensitive stocks such as Home Depot.

Cramer says the coming earnings season should offer a clearer view of how higher borrowing costs are affecting companies. That leaves software’s third-quarter recovery intact for now, but the next phase of market leadership may depend on whether rates continue to rise.

In our earlier coverage of the early fourth-quarter rebound in U.S. stocks, we noted that equities stabilized after benchmark Treasury yields pulled back from multi-year highs, helping reverse an initial selloff. The report also highlighted how investors were refocusing on upcoming U.S. jobs data to gauge the Federal Reserve’s next policy steps, with cross-asset moves in the dollar, oil, and gold reflecting shifting rate expectations.

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