US Market: Software stocks hit 2026 highs as AI disruption fears ease

US software stocks have climbed to fresh 2026 highs, helped by a sharp improvement in earnings expectations and growing signs that concerns over artificial intelligence-driven disruption may have been overstated, according to a report by Reuters.

The S&P 500 software and services index rose 1.3% on Tuesday to its highest level since November 2025. The index also posted its strongest quarterly gain since the second quarter of 2020 during the July-September period, the report stated.

Strong results from companies including Salesforce, ServiceNow and Accenture, along with partnerships between software firms and AI laboratories, have supported a recovery that began in late June.


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Cybersecurity stocks have been among the strongest performers. CrowdStrike, Fortinet and Palo Alto Networks have all posted triple-digit gains this year as businesses increase spending on cybersecurity amid the rapid adoption of AI.

The report stated that several analysts now view AI more as an enabler than a threat to many software companies, with the sector beginning to regain leadership after lagging the broader technology market.

The software index is up about 5% in 2026, compared with an 87.5% surge in the Philadelphia SE Semiconductor Index. However, semiconductor stocks have pulled back significantly from their recent highs.

Expectations for software earnings have also improved sharply. LSEG data showed that the sector's expected annual earnings growth for 2026 has risen to 20.6%, up from 13.8% at the end of March.

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SaaSpocalypse fears lose momentum

Software stocks suffered a major selloff earlier this year as investors worried that companies could use AI to develop applications internally at a much lower cost, potentially undermining the traditional software-as-a-service business model, Reuters reported.

The software index fell more than 26% from late January to its April low in a decline known as the "SaaSpocalypse."

The report stated that analysts now believe the scale and speed of the feared disruption have not matched earlier expectations. Software vendors have increasingly reported customer adoption of AI products as businesses move beyond experimentation and begin deploying the technology more broadly.

The recovery suggests investors are becoming more confident that established software companies can adapt their products and business models to the AI era rather than being displaced by it.

However, significant risks remain. Rapid advances in AI could still reshape software business models, particularly as coding and application development become increasingly automated.

As per the report, some strategists see the second half of 2027 as a more important test for the sector, when additional data-center capacity could allow AI-powered coding tools to pose a larger threat to traditional software companies.

For now, improving earnings forecasts, stronger demand for AI-enabled products and robust cybersecurity spending are helping US software stocks regain investor confidence.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)