Software stocks regain favor after strong earnings

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Software stocks regain favor

Highlights

IGV has gained 17% since the first half ended.
The SOX has fallen about 19% over the same period.
Software earnings beat estimates by more than 13%.
Cybersecurity stocks have surged 65% this year.

The iShares Expanded Tech-Software Sector ETF, or IGV, has risen 17% since the end of the first half, while the Philadelphia Stock Exchange Semiconductor Index, or SOX, has fallen about 19%, Bloomberg reported. That reverses the first-half trade, when the SOX doubled and IGV declined 14%.

Earnings revive software stocks

Corporate results have provided the strongest support for the rebound. Every software company in the S&P 500 that reported during the latest earnings season beat profit expectations, with the average surprise exceeding 13%. More than 80% also surpassed revenue forecasts.

Several of the stocks previously viewed as vulnerable to AI disruption recorded sharp gains. Microsoft posted its largest one-day advance since October 2008 after reporting accelerating cloud growth. Salesforce surged more than 20%, its strongest session in six years, following an upbeat forecast and an expanded Anthropic partnership.

Palantir jumped nearly 30% after its outlook pointed to robust demand, while Snowflake climbed by double digits after issuing an encouraging forecast. ServiceNow has advanced 45% since reporting results in late July.

Cybersecurity has been particularly strong. A Goldman Sachs basket tracking security software companies has gained 65% in 2026, as more powerful AI systems increase demand for tools designed to protect corporate networks and data.

Software gains as chip momentum fades

The shift has coincided with growing uncertainty around the infrastructure side of the AI boom. Major technology companies continue spending heavily on data centers, but regulatory pressure, opposition to new facilities and discussions about slowing development of the most advanced AI models have complicated the outlook for hardware.

The divergence became especially visible Monday. IGV jumped 5%, while the SOX dropped 5.9%, producing the widest one-day performance gap between the two in data going back to 2001.

Earnings reshape the AI stock trade

The rebound does not eliminate longer-term questions about how AI will affect software demand, but current financial results have weakened the case for an immediate collapse.

Bloomberg Intelligence estimates S&P 500 software and services earnings could grow 13.8% in 2027 and 20.8% in 2028, alongside accelerating revenue. Analysts remain more optimistic about chip stocks based on price targets, however, seeing more than 40% upside over 12 months compared with 17% for the S&P 500 software index.

For investors, the recent move marks a significant change from the first half: software stocks are again competing for capital rather than serving primarily as the losing side of the AI trade.

We also reported AI-driven cybersecurity spending boom lifts software sector outlook.

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