'Concerns have peaked': Wall Street considered - 'soft-apocalypse' complete

Shares of software companies showed the best weekly growth since Ma last year, which may indicate the formation of a bottom after a prolonged sell-off in the sector, Bloomberg writes. The collapse in shares of software developers, which only for one week in early February took away almost $1 trillion of their market capitalization, was caused by investors' fears that artificial intelligence can significantly change the software market.

Over the previous two weeks - from February 23 to March 9 - the S&P 500 Software Index rose 10%, with about 6 percentage points of that added in the first week of March. Also, the iShares Expanded Tech-Software Sector ETF, which is often used as an indicator of the performance of software companies, posted its strongest weekly gain in 11 months, Bloomberg points out. In the first week of March, it added about 7%, and since February 23 - rose about 10%, although at the moment its growth reached 14%.

Meanwhile, relative to its peak last fall, the iShares Expanded Tech-Software Sector ETF is still down more than 35%. Since the beginning of the year, this ETF is down about 19%, while the S&P 500 has lost about 1% over the same period, MarketWatch adds.

According to Michael Toomey, managing director of Jefferies' trading division, long-only investors - on average - bought twice as many shares of software companies as they sold last week. "Such a strong skew is rare. The peak of hysteria has already passed and the market has completely cleared of excessive selling," he said (quoted by Bloomberg).

Investors' interest in software companies has been growing since February 23, when the analytical company Citrini Research alarmed the market with its gloomy forecast of the industry's future amid the development of artificial intelligence. By that period, Bloomberg notes, the volume of bearish bets in the software sector had reached a 17-year high, according to Deutsche Bank data.

Since then, hedge funds have repositioned themselves on software stocks. For example, the Goldman Sachs basket, which tracks the performance of software companies relative to semiconductor makers, rose about 9% in March as investors closed short positions in software and reduced overweight positions in chipmaker stocks, Bloomberg notes.

One of the factors behind the recovery of software stocks was the presentation of AI startup Anthropic on Feb. 24, where the company unveiled new AI tools developed in conjunction with a number of large technology companies, which had previously been under pressure from traders because of the possible negative impact on them due to the development of AI, Bloomberg notes.

Another factor supporting the sector remains fundamental indicators, the agency points out. Even during the sell-off, analysts' forecasts for software companies' profits for 2026 continued to grow: according to Bloomberg Intelligence, software and services companies in the S&P 500 are expected to show 21% profit growth this year - against 17% forecasted at the end of 2025. In the fourth quarter, 93% of software companies in the index beat earnings forecasts, compared with 74% of S&P 500 issuers overall.

"After consulting with various experts, universal analysts, as well as Gemini, ChatGPT and Claude models, we still have not found any software company that expects AI to have a negative impact on revenue in 2026," Deutsche Bank strategists wrote in a note issued on Tuesday, March 10th. At the same time, the bank's analysts upgraded the software sector to an above-market (overweight) rating. "We believe that concerns about the disruptive impact of AI have peaked," the experts added.

Compared to the situation in late January-early February - at the start of a large-scale selloff in the market of software developers' securities, which became known as the "software apocalypse" - investors now have a more "holistic view" of how artificial intelligence can affect the software sector, said D.A. Davidson analyst Gil Luria (quoted by MarketWatch). There are still software stocks with high growth potential and attractive valuations that may be interesting to invest in, he said.

To such companies the analyst referred two developers of corporate software - Box (the company creates tools for business collaboration) and LiveRamp Holdings (specializes in software solutions for working with data and marketing). Their shares are traded with price to free cash flow multiples below historical levels and sector averages, Luria explained.

Since the beginning of the year, Box's shares have fallen by almost 25%, while LiveRamp Holdings' securities have added about 1%. Analyst D.A. Davidson expects that both of them will be able to show dynamics better than the market and the majority of software companies.

Luria also singled out Dynatrace and ServiceNow, which he estimates fall into the "growth at a reasonable price" category - which is how the expert labeled what he sees as fast-growing companies with relatively moderate market valuations. According to FactSet estimates cited by MarketWatch, Dynatrace and ServiceNow's revenue could grow by about 16% and 21%, respectively, in 2026. By comparison, the consensus forecast for revenue growth for companies in the iShares Expanded Tech-Software Sector ETF assumes an increase of about 4%, the publication notes.

Among the growth companies with higher scores, Luria singled out Snowflake, Datadog and Shopify.

According to MarketWatch, out of 12 analysts who are watching Box securities, five of them advise to buy and another five - to hold (consensus analysts' price target implies their growth by almost 28% relative to current quotations). A similar position is held by the experts covering LiveRamp shares: five recommendations to buy and four to hold; the consensus target is 30% higher than the current quotations). The majority of analysts watching Dynatrace securities (26 out of 36) recommend to buy the company's securities, ten more - adhere to the advice to hold. "Buy" and "Overweight" ratings also prevail in analysts' assessments of ServiceNow securities (43 out of 47 total). Analysts give similar recommendations for Snowflake, Datadog and Shopify shares.

This article was AI-translated and verified by a human editor