After months of brutal losses, the software sector is staging a dramatic comeback that analysts say could have significant room left to run.
The Morningstar US Software Application Index shed roughly 27% between October 2025 and mid-July 2026, even as the broader market gained nearly 15% over the same stretch.
Stocks including Salesforce (CRM), ServiceNow (NOW), and Adobe (ADBE) were among the names caught in that painful downturn as investor sentiment soured sharply.
The central fear driving those losses was the belief that artificial intelligence would undermine traditional software business models and dramatically lower barriers to entry across the industry.
That narrative gained traction following a series of high-profile stumbles, including the pennies-on-the-dollar acquisition of one-time highflyer Airtable, which rattled investor confidence broadly.
Earnings-related plunges at HubSpot (HUBS), Datadog (DDOG), and Figma further reinforced concerns that AI models were actively eroding the value of premium software products.
Investors interpreted those results as early evidence that costly, feature-rich software suites could face structural pricing pressure from increasingly capable AI alternatives.
However, the narrative began shifting as Atlassian (TEAM) and Twilio (TWLO) posted historic earnings pops, reviving confidence in pockets of the sector that many had written off.
Several key software stocks have now climbed more than 20% since reporting earnings over the last couple of weeks, suggesting the sector’s selloff may have been overdone.
Adding further fuel to the rally is growing speculation that Anthropic could pursue a public offering in late September or early October, a development widely seen as a catalyst for the broader AI landscape.
A potential Anthropic IPO is expected to draw fresh capital into the space, accelerate infrastructure build-out, and generate meaningful downstream demand for software products tied to AI development.
That combination of stronger-than-feared earnings results and a possible high-profile IPO has traders reassessing whether the so-called AI loser trade in software was ever fully justified.
