Key Takeaways
- Software equities continue to significantly underperform the S&P 500, which has reached fresh record highs
- Despite a notable weekly rally, the iShares Expanded Tech-Software Sector ETF (IGV) remains down 22% year-to-date in 2026
- Oracle jumped 24% over the past week, while Microsoft and Palantir each climbed 11%, though all three remain negative for the year
- Emerging AI players such as OpenAI and Anthropic are encroaching on enterprise software territory, creating existential concerns for legacy providers
- Technical strategists maintain the sector remains in a downward trajectory and caution against premature entry
The software sector has staged an impressive short-term recovery this week, yet market strategists remain skeptical that the worst is behind these beaten-down technology names.
IGV, the iShares Expanded Tech-Software Sector ETF, has climbed more than 11% across three trading sessions—marking its strongest three-day performance since the pandemic-era volatility of March 2020. Despite this sharp rally, the exchange-traded fund continues to trade 22% below where it started 2026 and recently touched levels not seen since November 2023.
Among individual movers, Oracle has delivered approximately 24% gains over the past week. Microsoft and Palantir have each posted roughly 11% advances. Yet even after these rebounds, Oracle remains 12% in the red for 2026, while Microsoft is off 15%—positioning it among the weakest performers in the Magnificent Seven cohort.
Meanwhile, the benchmark S&P 500 has reclaimed all-time peak levels, adding approximately 1.8% since late February. The software industry has dramatically lagged this broader market recovery.
Understanding the Software Sector’s Decline
The fundamental challenge facing software companies stems from widespread apprehension. Market participants increasingly worry that artificial intelligence platforms developed by firms like OpenAI and Anthropic will commoditize traditional software offerings and erode competitive moats. This concern has triggered a sector-wide valuation compression.
The S&P North American Expanded Technology Software Index currently commands a forward price-to-earnings multiple of approximately 21 times. This represents a dramatic decline from nearly 40 times in July and sits substantially beneath the 10-year historical average of 34 times.
Certain prominent names have experienced even more severe multiple contraction. Salesforce now carries a 13 times forward earnings valuation, compared to its 10-year average of 45 times. Adobe trades below a 10 times multiple, having previously averaged 30 times. Adobe shares have also declined 30% year-to-date.
Notable investor Michael Burry recently revealed stakes in multiple software companies this week, including Veeva Systems, Autodesk, and Adobe. Market observers interpret these positions as a potential bullish signal for the battered sector.
Simultaneously, Wall Street profit projections for software companies have been gradually revised upward. The software and services segment is now expected to deliver 16.5% earnings growth in 2027, up from a 15.7% forecast at February’s conclusion.
Market Strategists Remain on the Sidelines
Many professional investors aren’t convinced it’s time to deploy capital. Brad Conger from Hirtle Callaghan stated he has no interest in attempting to call a sector bottom, regardless of apparent valuation discounts. Additional analysts emphasize that seemingly secure franchises today could face unexpected AI-powered competitors tomorrow.
Technical market analysts are exercising similar restraint. Adam Turnquist at LPL Financial characterized the sector as locked in a persistent downtrend with substantial “technical damage to repair.” He specified that confirmation of a sustainable bottom would require the 50-day moving average to provide support and a pattern of ascending lows to emerge.
Paul Hickey and Justin Walters from Bespoke Investment Group suggested this week that entering positions at current levels still resembles “catching a falling knife.”
The S&P North American Technology Software Index has established a support zone around the 1,600 level. According to Turnquist’s analysis, a break above 1,908 would potentially confirm a double-bottom reversal pattern.
Bloomberg Intelligence data indicates software and services company earnings are projected to expand 16.5% in 2027.
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