After months of heavy selling on fears of

artificial-intelligence disruption

,

software stocks

appear to have found a bottom — at least for now.

The

S&P 500 software index

is coming off its best week since May. The widely followed iShares Expanded Tech-Software Sector ETF, ticker IGV, just posted its strongest week in 11 months and is up 14 per cent since Feb. 23, when Citrini Research rattled the market with its dystopian vision of an AI future.

Even with those gains, which have been tempered by a dip this week, the stocks still look cheap as a result of the selloff that began in the second half of last year. A Goldman Sachs software basket is trading for 22 times forward earnings, compared with 21 for the S&P 500 Index. Over the past decade, the basket has traded at an average multiple of 52, while the S&P 500’s average is 19.

Shares of

cloud-based software provider Salesforce Inc. are priced at less than 15 times earnings compared with their 10-year average of 46. And Microsoft Corp. is trading for 22 times earnings, down from its 10-year average of 27.

“We see a big disconnect between valuations and high-quality fundamentals, where the

risks seem exaggerated

,” said Hua Cheng, a portfolio manager at Mirova, which has US$39 billion in assets.

Risk has been the watchword around

software makers

for a while, as investors fret about the impact of AI on those businesses. The logic is that

if AI agents can code

, companies can just

build their own software suites

and cut out the firms they once bought them from.

With each new development from AI startups like Anthropic and OpenAI, stocks in industries from finance to travel to, yes, software, have sold off. Indeed, the same day as Citrini’s research report came out, the shares of International Business Machines Corp. were hammered after the release of a tool from Anthropic stoked those exact fears.

Throughout the selloff, plenty of software bulls have called concerns about the outlook for profit and revenue growth overblown. And yet, the stocks kept falling, culminating in IGV’s drop of 35 per cent from a September high to its recent bottom on Feb. 23.

Since then, the stocks have been staging a comeback. Hedge funds have flipped on the group after bearish bets reached the highest level in 17 years at the end of February, according to data from Deutsche Bank Securities. A Goldman Sachs basket tracking software versus semiconductor companies is up about nine per cent this month as investors cover software shorts and unwind crowded chip positions.

Options trading shows a similar shift in sentiment, with demand for exposure to the software sector surging as positioning moves from deeply oversold levels to active bullish re-engagement.

One of the factors driving the rebound was an Anthropic event on Feb. 24 in which the company unveiled new tools developed in concert with a number of incumbents that had been in traders’ crosshairs.

Another is fundamentals. Even as the stocks sold off, profit estimates for 2026 were rising. Software and services companies in the S&P 500 are projected deliver 21 per cent earnings growth this year, up from 17 per cent at the end of 2025, according to data compiled by Bloomberg Intelligence. In the fourth quarter, 93 per cent of software companies in the S&P 500 beat profit estimates, compared with 74 per cent for the broader index.

“After asking various experts, generalists, Gemini, ChatGPT and Claude, we have still not come across a single software company that expects a negative revenue effect from AI in 2026,” Deutsche Bank strategists wrote in a note released Tuesday in which they turned overweight on software within the tech sector. “We think AI disruption worries have peaked.”

That could explain why there’s been a surge in buying. Last week, long-only investors on average were snapping up twice as many software shares as they were selling, according to Michael Toomey, a managing director on the equity trading desk at Jefferies.

“To have a skew this extreme is notable,” he said. “Peak hysteria just washed everyone out.”

The promise of buybacks is also helping to lift the stocks. Salesforce and Wix.com Ltd. are among the software makers that have pledged to aggressively repurchase beaten-down shares. Salesforce is reportedly planning to sell up to US$25 billion of debt to fund its buyback.

“We’re increasing our share repurchase authorization to US$50 billion, because these are some low prices,” chief executive Marc Benioff said on the company’s Feb. 25 earnings call. “This is not our first SaaSpocalypse.”

Wix, which has a market capitalization of less than US$5 billion, began a “modified Dutch auction” tender offer last week for up to US$1.75 billion of shares. Intuit Inc. is also aiming to “meaningfully increase” repurchases this year, executives said on the company’s earnings call late last month.

These kinds of announcements are usually positive signals, according to Chris Galipeau, senior market strategist at Franklin Templeton.

“If you’re the CEO and this is what you announce, you’re only doing it because you believe your business is well positioned, the concerns surrounding it are overblown, and that this is the best use of capital you see,” he said.

Company insiders, however, are still missing from the buy signals. The value of stocks purchased by executives at software companies reached US$30.9 million in December, the highest in nearly two years, according to data compiled by the Washington Service. That slowed significantly in January and February as the stock selloff kicked into high gear.

“It’s not just a stock buyback but an accelerated buyback which underscores management’s confidence in the outlook,” Galipeau said. “Insider purchases can reinforce that signal.”

    —With assistance from Natalia Kniazhevich, Subrat Patnaik and David Watkins.

    Bloomberg.com

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