Salesforce made it into the top 5 best-performing stocks of August. Is the “software apocalypse” over?

Contrary to the negative trend that has affected the stocks of software development companies this year due to the potential impact of AI on their businesses, Salesforce, which develops sales and customer relationship management (CRM) software, saw its stock soar nearly 40% in August. This made them one of the top four growth leaders in the S&P 500 index for the month, according to CNBC.

In addition, according to MarketWatch, the S&P 500 Software & Services sector index showed positive momentum in August: it gained 13% in August, while the broader S&P 500 U.S. stock index rose 2.6% over the same period.

The current rally in software company stocks may signal a reversal of the negative trend that has been weighing on software developers’ shares since late last year, Barron’s notes. Since February, a pessimistic scenario has prevailed on Wall Street: market participants who were bearish on software expected that artificial intelligence would harm the businesses of software developers — investors feared that AI agents would begin to replicate the functionality of expensive enterprise software, leading to the replacement of human employees and a sharp decline in the number of paid subscriptions. The sell-off of software company stocks in early February came to be known in the market as the “software apocalypse.” However, the August rally in the software development sector may indicate that these risks have been reassessed, MarketWatch adds.

According to the publication, Salesforce’s quarterly earnings report last week, among other factors, provided a positive boost to the industry—following its release, the company’s stock jumped 22% in a single day and also provided a boost to other software companies. Salesforce’s financial results “went a long way toward dispelling the ‘software apocalypse’” the company had been grappling with for the past six months, writes Guggenheim analyst John DiFucci, as reported by MarketWatch.

The expansion of its AI division and its partnership with the AI lab Anthropic played a key role in Salesforce’s business revaluation. The company also reported an increase in its contract portfolio and raised its revenue forecast. The final convincing factor for the market was a joint appearance on CNBC by Salesforce executives and Anthropic CEO Dario Amodei (the head of Anthropic had also previously participated in Salesforce’s earnings conference call). Together with Salesforce’s top management, he refuted speculation that Anthropic’s models and AI agents would replace Salesforce’s software and demonstrated ways to integrate them with one another, according to Barron’s.

Wall Street analysts note that Salesforce has successfully addressed the key “existential question” about its future. Michael Monaghan, portfolio manager at Founder ETFs, and Nicholas Frasse, thematic ETF product manager at VanEck, emphasize: the hypothesis that AI would easily replace off-the-shelf software has proven untenable, and companies with strong fundamentals are not victims but rather the primary beneficiaries of technological progress, according to MarketWatch.

In terms of market outlook, analysts expect the positive trend for software companies to continue. In particular, Mizuho analyst Jordan Klein expects the momentum to continue through the September Dreamforce conference—a major annual IT conference organized by Salesforce, where companies present new products and development strategies. Funds will continue to add software sector stocks to their portfolios due to significant underweight positions, Klein notes, according to MarketWatch.

At the same time, Barron’s columnist Adam Levine points out Salesforce’s attractive valuation: even after a sharp rally, the company’s forward P/E ratio has risen to only 16x, which is still below the S&P 500 average (19x). Given that Salesforce’s stock remains 30% below its all-time highs, the expert views the past quarter as a turning point that could trigger a long-term recovery in the company’s stock.

According to the MarketWatch consensus forecast, the overwhelming majority of analysts maintain a positive outlook on Salesforce shares: out of 58 experts, 40 recommend buying them (Buy and Overweight ratings), 16 advise holding them in portfolios (Hold), and not a single analyst has issued a “Sell” rating. The average price target stands at $265—which is about 3% above their last closing price.

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