TLDR
- While the S&P 500 reaches fresh record highs, software equities continue to significantly underperform
- Despite a powerful weekly rally, the iShares Expanded Tech-Software Sector ETF (IGV) remains 22% lower year-to-date in 2026
- Oracle jumped 24% this week, with Microsoft and Palantir each climbing 11%, yet all three remain deeply negative for the year
- Emerging AI enterprises such as OpenAI and Anthropic entering the enterprise software space are perceived as disruptive forces threatening established business models
- Market strategists maintain the sector remains in a confirmed downtrend and caution against premature bottom-fishing
Software equities have staged a powerful rebound over recent trading sessions, yet numerous market strategists believe the sector faces considerable challenges before establishing a sustainable recovery.
The iShares Expanded Tech-Software Sector ETF, trading under the ticker IGV, has surged more than 11% across just three sessions. This represents the fund’s most substantial three-day advance since the pandemic-driven volatility of March 2020. Despite this impressive bounce, the ETF remains mired 22% below its 2026 starting point and recently registered its weakest closing level since November 2023.
Oracle has emerged as one of the standout performers, rocketing approximately 24% higher this week. Microsoft and Palantir have each appreciated roughly 11%. However, these rallies haven’t erased earlier losses — Oracle still sits 12% underwater for the year. Microsoft has declined 15%, positioning it among the poorest performers within the Magnificent Seven cohort.
Meanwhile, the benchmark S&P 500 has climbed back to unprecedented territory, advancing approximately 1.8% since late February. Software has dramatically lagged this performance.
The Forces Driving Software’s Decline
The fundamental driver is investor anxiety. Market participants increasingly worry that artificial intelligence platforms from companies like OpenAI and Anthropic will commoditize traditional software offerings and erode competitive moats. This apprehension has severely compressed valuations throughout the sector.
The S&P North American Expanded Technology Software Index currently commands roughly 21 times forward earnings. This marks a dramatic contraction from nearly 40 times in July and sits substantially below the 10-year historical average of 34.
Certain individual names have plummeted to valuation levels not seen in over a decade. Salesforce now fetches just 13 times projected earnings, compared to a 10-year average of 45. Adobe trades below 10 times forward estimates, down from a historical average of 30. Adobe has also surrendered 30% of its value this year.
Notable investor Michael Burry revealed new positions this week in multiple software companies, including Veeva Systems, Autodesk, and Adobe. Some market observers interpret this disclosure as a bullish signal.
Wall Street’s earnings projections for the sector have also shown modest upward revision. Software and services profit growth is now anticipated to reach 16.5% in 2027, an increase from the 15.7% forecast that prevailed at February’s conclusion.
What Market Strategists Are Monitoring
Not all investment professionals are prepared to deploy capital. Brad Conger of Hirtle Callaghan indicated he has no interest in attempting to identify a sector bottom, regardless of compressed valuations. Other analysts emphasize that companies appearing insulated today could suddenly confront new AI-powered competitors tomorrow.
Technical market analysts remain equally circumspect. Adam Turnquist of LPL Financial stated the sector continues exhibiting downtrend characteristics and has significant “technical damage to repair.” He emphasized that the 50-day moving average and a sequence of ascending lows would need to materialize before confirming a durable bottom formation.
Paul Hickey and Justin Walters of Bespoke Investment Group commented this week that purchasing at current levels still resembles “catching a falling knife.”
The S&P North American Technology Software Index has established support in the vicinity of the 1,600 level. According to Turnquist, a decisive break above 1,908 could indicate a double-bottom breakout pattern.
According to Bloomberg Intelligence data, profits at software and services enterprises are projected to expand 16.5% in 2027.
