Catenaa, Friday, September 18, 2026- Near-term sentiment of software stocks is improving despite AI permanently altering their long-term outlook.
According Bloomberg News, Software stock 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.
Strong earnings in the last quarter, reassured investors that software firms are still growing.
Which was then followed by, AI leaders started calling for a slowdown in the development of their AI models.
“Taken together, it’s offering reassurance that the worst-case scenario for the industry is unlikely to materialize, at least not soon,” Bloomberg report said.
The biggest sign of the shift towards software stock is the reversal of a popular trade: 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.
According data compiled by Bloomberg, 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%, which is 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,” the report said.
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.
Bloomberg Intelligence data showed that 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.
These reassurances come as the outlook for AI hardware used in the technology’s infrastructure, is getting cloudy.
Despite companies like Microsoft, Alphabet, Amazon, and Meta remain committed to spending aggressively, there’s a growing negative sentiment against data centers, with calls for regulation, and new discussions about slowing development of 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.
According to Bloomberg News, 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.
