- US software stocks reached new 2026 highs driven by stronger earnings expectations
- The S&P 500 software index rose 1.3%, its highest since November 2025
- Partnerships between software firms and AI labs boosted growth outlooks
US software stocks extended their recovery on Tuesday, with the sector climbing to fresh 2026 highs as stronger earnings expectations and improving investor sentiment eased concerns over the impact of artificial intelligence on traditional software businesses.
The S&P 500 software and services index rose 1.3%, reaching its highest level since November 2025. The index had already posted its strongest quarterly gain since the second quarter of 2020 during the July-September period.
The turnaround has been supported by better-than-expected performance from major software companies, including Salesforce, ServiceNow and Accenture.
As per Reuters, the partnerships between software companies and AI labs have also helped reinforce expectations that artificial intelligence could create new growth opportunities rather than simply threaten existing business models.
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Cybersecurity companies have emerged as some of the strongest performers. CrowdStrike, Fortinet and Palo Alto Networks have recorded triple-digit gains this year as businesses increase spending on cybersecurity amid the rapid adoption of AI.
"AI has been more of an enabler for a lot of these software companies, more than a disruptor," said Adam Turnquist, chief cross-asset strategist at LPL Financial.
The software index is up 5% in 2026, significantly trailing the 87.5% gain in the Philadelphia Semiconductor Index. However, analysts see room for software stocks to regain market leadership as expectations for earnings improve.
According to LSEG data, the sector's expected annual earnings growth for 2026 has risen to 20.6%, compared with 13.8% at the end of March.
The recovery marks a sharp reversal from earlier concerns around the so-called "SaaSpocalypse". The software index had fallen more than 26% between late January and its April low as investors feared companies could use AI to develop applications internally at lower costs.
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Analysts now believe those concerns moved faster than the actual disruption. However, risks remain. Some strategists expect AI-driven coding capabilities and greater data centre capacity to pose a bigger challenge to traditional software companies by the second half of 2027.
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