Key Takeaways
- Traditional software equities have underperformed dramatically while the S&P 500 reaches record territory
- IGV, the iShares Expanded Tech-Software Sector ETF, remains 22% lower in 2026 following a recent upward move
- Oracle climbed 24% over the past week, while Microsoft and Palantir each advanced 11%, though year-to-date losses persist
- Emerging AI platforms from OpenAI and Anthropic create competitive pressure on established software providers
- Market strategists point to ongoing technical weakness and caution against premature entry positions
The software sector has experienced a notable recovery over recent trading sessions, yet market professionals remain skeptical about whether this marks a genuine turning point.
IGV, the iShares Expanded Tech-Software Sector ETF, has climbed more than 11% across three consecutive sessions. This represents the fund’s strongest three-day performance since March 2020. The ETF remains 22% below its 2026 starting point and recently touched price levels last seen in November 2023.
Oracle has emerged as a standout performer, advancing approximately 24% during the current week. Microsoft and Palantir have each posted gains near 11%. Oracle still carries a 12% year-to-date decline. Microsoft’s 15% drop positions it among the weakest performers within the Magnificent Seven group.
The benchmark S&P 500 has climbed to fresh all-time peaks, posting approximately 1.8% gains since late February. Software equities have lagged considerably behind this performance.
Factors Driving Software Sector Weakness
Investor anxiety centers on competitive threats from artificial intelligence platforms. Companies such as OpenAI and Anthropic are developing tools that could commoditize existing software products and erode pricing power. These concerns have pressured valuations throughout the industry.
The S&P North American Expanded Technology Software Index currently commands a multiple of approximately 21 times forward earnings. This reflects a sharp decline from nearly 40 times in July and sits substantially below the 10-year average of 34.
Certain individual names have reached valuation levels rarely witnessed before. Salesforce now trades at 13 times projected earnings, compared to a decade-long average of 45. Adobe has fallen below 10 times forward earnings, down from an average of 30. Adobe carries a 30% year-to-date loss.
Investor Michael Burry recently revealed new positions in multiple software companies, including Veeva Systems, Autodesk, and Adobe. Market observers view these disclosures as potentially signaling underlying value.
Street consensus for sector earnings has shown gradual improvement. Analysts now project software and services profit growth of 16.5% in 2027, up from 15.7% forecasted at February’s conclusion.
Current Analyst Perspectives
Despite attractive valuations, many investment professionals maintain caution. Brad Conger of Hirtle Callaghan expressed reluctance to attempt bottom-fishing in the sector at current levels. Other strategists highlight that seemingly insulated companies today could encounter fresh AI-driven competition tomorrow.
Technical analysis provides additional reasons for restraint. Adam Turnquist of LPL Financial characterized the sector as remaining within a downtrend with significant “technical damage to repair.” He emphasized the need for the 50-day moving average to stabilize and for higher lows to form before establishing a sustainable floor.
Paul Hickey and Justin Walters of Bespoke Investment Group described current entry attempts as resembling “catching a falling knife.”
The S&P North American Technology Software Index has established support around the 1,600 level. Turnquist suggests a rally above 1,908 could indicate a double-bottom breakout pattern.
Bloomberg Intelligence data projects software and services company profits will expand 16.5% in 2027.
