Software’s Comeback Gains Ground as Earnings Challenge the AI Selloff
The software sector was written off too soon. After AI disruption fears crushed valuations, enterprise software stocks are starting to recover, with strong earnings doing much of the work. Now investors have to decide whether the rebound has staying power or is simply another momentum-driven bounce.
Bouncing back: The S&P software index lost more than 33% between its Oct. 28 record high and Apr. 10, as concerns over AI disruption pushed valuations sharply lower. The selloff intensified after Anthropic released a new product in January, raising fears that some traditional software tools could eventually become obsolete. The index has since rebounded 33%, but it remains down more than 3% for the year.
- Microsoft surged 29% over eight sessions following its Jul. 29 earnings release, the single biggest catalyst in the index's summer recovery.
- The equal-weight software ETF has risen ~24% since Jun. 22 while the semiconductor ETF has fallen ~24%, the widest gap between the two on record.
Earnings Bring Relief
Salesforce and CrowdStrike both delivered strong results Wednesday evening. Salesforce raised its fiscal 2027 revenue outlook and announced a broader AI partnership with Anthropic, while CrowdStrike issued an annual revenue forecast above expectations as demand for AI-powered security remained strong. Both stocks rose after hours.
- CrowdStrike ended Q2 with $5.84B in annual recurring revenue, beating consensus as shares climbed more than 62% this year.
- Salesforce grew Q2 revenue 11% to $11.35B, topping estimates even as the stock remains down 22% this year.
Not every name is celebrating: The same earnings week exposed a widening split across software. UBS downgraded SAP to Neutral over its slow agentic AI rollout, while Intuit fell after guiding to weaker growth this year. Cybersecurity names are still holding up better than traditional SaaS, and the rapid growth of leveraged single-stock ETFs is making those moves even more pronounced.