Catenaa, Friday, September 18, 2026- Near-term sentiment of software stocks is improving even as AI’s arrival may have permanently altered software’s long-term outlook.
Software stocks were left for dead earlier this year as investors bet that AI’s emergence had doomed the business. But it turns out that imminent demise was greatly exaggerated.
First, strong earnings reassured investors that software firms are still growing.
Then, AI leaders started calling for a pause in the development of their most powerful models. Taken together, it’s offering reassurance that the worst-case scenario for the industry is unlikely to materialize, at least not soon.
The biggest sign of the vibes shift is the reversal of a popular trade from earlier in the year: long chipmakers, short software.
In the first half of 2026, the Philadelphia Stock Exchange Semiconductor Index, better known by its ticker SOX, doubled in value while the iShares Expanded Tech-Software Sector ETF, or IGV, sank 14%.
Since then, the SOX is down about 19%, and IGV has risen 17%. The prospect of ultra-powerful AI means security software is doing particularly well, with a Goldman Sachs basket of cybersecurity stocks surging 65% this year.
An encouraging earnings season kickstarted the move, with 100% of software companies in the S&P 500 beating expectations by an average of more than 13%, according to data compiled by Bloomberg. More than 80% posted better-than-anticipated revenue.
The impressive reports featured firms that had faced concerns about AI-related disruption, highlighting how they’re harnessing the technology to improve their own products.
Most notably, Microsoft had its biggest one-day jump since October 2008 after showing a substantial acceleration in cloud growth.
In addition, Salesforce shares soared more than 20%, their biggest one-day surge in six years, after the company gave a robust forecast and deepened its partnership with Anthropic PBC.
Palantir’s stock jumped nearly 30% on a healthy outlook and “otherworldly” demand.
Snowflake had a double-digit pop after giving a positive outlook and touting the adoption of its AI-assisted coding tool.
And ServiceNow added to optimism about the potential of its AI tools, sending its stock up 45% since its report in late July.
Wall Street analysts expect the strong performance to continue. The S&P 500 Index’s software and services sector is expected to post earnings growth of 13.8% in 2027 and 20.8% in 2028, as revenue also accelerates, according to Bloomberg Intelligence data.
These reassurances come as the outlook for AI hardware, including chips and other components used in the technology’s infrastructure, is getting cloudy.
While companies like Microsoft, Alphabet, Amazon, and Meta remain committed to spending aggressively, there’s a growing backlash against data centers, vocal calls for regulation, and now active discussions about slowing development of cutting-edge AI models.
The reversal was on display Monday, the first trading day after the warnings from Anthropic Chief Executive Officer Dario Amodei, OpenAI leader Sam Altman and SpaceX’s Elon Musk.
The software ETF soared 5%, while the chip index tumbled 5.9%, with the widest performance gap in either direction on record, based on data going back to 2001.
To be sure, many investors still think chipmakers and other parts of the AI supply chain have better prospects than software providers.
Based on average price targets, analysts see chip stocks rising more than 40% over the next 12 months, compared with 17% for the S&P 500 software index.
