Software Stocks Are the Cheapest They’ve Been in Years — But Is Now the Time to Buy?

TLDR

• The S&P 500 has returned to all-time highs while software stocks have badly lagged behind
• The iShares Expanded Tech-Software Sector ETF (IGV) is still down 22% in 2026 despite a strong weekly bounce
• Oracle surged 24% this week, Microsoft and Palantir each gained 11%, but all remain deep in the red for the year
• AI companies like OpenAI and Anthropic pushing into enterprise software are seen as a threat to traditional software business models
• Analysts say the sector is still in a downtrend and warn investors against “catching a falling knife”

Software stocks have bounced sharply this week, but many analysts say the sector still has a long way to go before it’s out of trouble.

The iShares Expanded Tech-Software Sector ETF, known as IGV, is up more than 11% over three sessions. That’s its biggest three-day gain since March 2020. But the fund is still down 22% in 2026 and recently closed at its lowest level since November 2023.

Oracle has been one of the biggest movers, surging around 24% this week. Microsoft and Palantir have each gained around 11%. Even with those gains, Oracle is still down 12% for the year. Microsoft is down 15%, making it one of the worst performers among the Magnificent Seven.

Oracle Corporation, ORCL

The broader S&P 500 has returned to all-time highs, gaining around 1.8% since late February. Software has not kept pace.

Why Software Stocks Have Struggled

The core issue is fear. Investors worry that AI tools from companies like OpenAI and Anthropic will make traditional software products easier to copy and undermine. That fear has weighed heavily on valuations across the sector.

The S&P North American Expanded Technology Software Index now trades at around 21 times forward earnings. That’s down from nearly 40 times in July and well below its 10-year average of 34.

Some stocks have fallen to historic lows. Salesforce now trades at 13 times estimated earnings, against a 10-year average of 45. Adobe trades below 10 times, down from an average of 30. Adobe is also down 30% this year.

Investor Michael Burry disclosed positions this week in several software names, including Veeva Systems, Autodesk, and Adobe. Some analysts see that as a vote of confidence.

Wall Street earnings estimates for the sector have also been creeping higher. Software and services profits are expected to grow 16.5% in 2027, up from a forecast of 15.7% at the end of February.

What Analysts Are Watching Now

Not everyone is ready to buy. Brad Conger of Hirtle Callaghan said he is not interested in finding a bottom in the sector, despite cheap valuations. Others point out that a company that looks safe today could face new AI competition tomorrow.

Technical analysts are also cautious. LPL Financial’s Adam Turnquist said the sector remains in a downtrend and still has “technical damage to repair.” He noted that the 50-day moving average and a series of higher lows would need to be established before a durable bottom could be confirmed.

Bespoke Investment Group’s Paul Hickey and Justin Walters said this week that buying now still feels like “catching a falling knife.”

The S&P North American Technology Software Index found support near the 1,600 level. A move above 1,908 could signal a double-bottom breakout, according to Turnquist.

Profits at software and services companies are expected to increase 16.5% in 2027, according to Bloomberg Intelligence data.

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