Software Stocks Show Resilience After Volatility in 2026

The software sector has been through a volatile 2026 but is in the midst of a solid recovery.

What investors dubbed the "SaaSpocalypse" was driven by fears that generative AI and autonomous agents could replace traditional Software-as-a-Service platforms. This created a selloff in stocks relying on subscription-based business models that powered many of the market's biggest winners the previous few years. The selloff was severe, with software valuations compressing as investors questioned whether AI would become a competitor rather than a catalyst.

Names like Salesforce (CRM), Workday (WDAY), Adobe (ADBE), ServiceNow (NOW), Snowflake (SNOW), Atlassian (TEAM), Datadog (DDOG) and others saw sharp declines as Wall Street reassessed their long-term growth prospects. Investors worried that AI agents could automate workflows that previously required large software suites and thousands of user licenses. The iShares Expanded Tech-Software Sector ETF (IGV) fell roughly 37% from its all-time high last September to its lows in mid-April. But the sector has recovered over the last several months with the IGV now only about 7% from its record highs. See "Claudeforce" Gives CRM New Earnings Opportunity While Maintaining Moat

Recent Earnings Show Revenue Surge

Recent software earnings reports suggest the sector is still in growth mode and past the fears and panic. While growth has moderated from the hyper-growth years, many software leaders continue to post double-digit revenue growth, strong recurring revenue, and healthy cash flow generation.

Salesforce rallied 22% last week to seven-month highs after beating earnings estimates and providing better than expected guidance. “Skeptics said customers are going to leave, and attrition is near its lowest level ever ... This ‘SaaSpocalypse’ narrative has been such nonsense,” Salesforce CEO Marc Benioff stated last week. Workday also beat earnings estimates and is up nearly 28% in August. Palantir (PLTR) was up 3.5% last week and is up roughly 51% this month. In its latest earnings report, the AI platform stock reported 93% Q2 revenue growth year-on-year including a surge in commercial revenue. See The Big 3: CRWD, SPCX, PLTR | Trading 360

Determining the Leaders Among Software Stocks

The broader outlook for software stocks is still selective despite the rebound. Investors are differentiating between software that can be replaced by AI and software that enables AI adoption. Companies with high switching costs, sticky enterprise relationships, and unique datasets are able to monetize their products. Others that rely heavily on seat-based pricing models may continue to face pressure as seen by slides in Adobe (ADBE), which is still down nearly 17% this year but is up 53% from its recent eight-year lows in late June.  See Software's Resurgence: Scott Martin on WDAY Acquisition Talks, CRM & ADBE Strengths 

For investors, the software trade has regained its footing, but risks still remain. The sector may never return to the lofty multiples seen during the cloud boom, but many leading software companies are now trading at reasonable valuations while still generating growth. If AI adoption continues at its current pace, the next phase of the software cycle may not be about replacement, but rather about identifying which companies become the operating systems for an AI-driven economy.

More clarity on software stocks comes this week with earnings reports due from Snowflake, MongoDB (MDB) and Docusign (DOCU).

• For this week's economic and earnings calendar, see Week Ahead: Big Week for Economic Data and Tech Earnings
• For the Week in Review, highlighting Schwab Network interviews, see Week in Review: Fund Flows Show Optimism Despite 60% Rate Hike Odds

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