Software stocks rally past key technical barrier as AI disruption fears recede
Snowflake earnings and cybersecurity demand drive 35% recovery from April lows, though Salesforce sell-off highlights lingering growth concerns.
The iShares North American Tech-Software ETF has closed above its 200-day moving average for the first time since 7 January, marking a significant technical milestone in a sector recently battered by fears of artificial intelligence disruption. The fund has rallied approximately 35% from its lows on 10 April, challenging narratives that AI providers such as Anthropic and OpenAI would render traditional software companies obsolete by 2028.
Traders widely regard the 200-day moving average as a critical indicator of long-term market trends, as it smooths out daily price volatility to reveal the underlying trajectory. The ETF’s ability to reclaim this level suggests a potential shift in sentiment, driven by strong earnings from Snowflake and renewed demand for cybersecurity solutions from firms including CrowdStrike and Palo Alto Networks.
Snowflake’s recent performance provided a substantial boost to the sector, with the company exceeding Wall Street profit estimates and materially increasing its guidance. This growth was attributed to strong demand for AI-related offerings, signalling that enterprise clients are still willing to invest in software infrastructure that complements, rather than competes with, new AI capabilities.
Concurrently, cybersecurity stocks have resumed their rally momentum as enterprises increase security spending. Companies such as CrowdStrike and Palo Alto Networks are benefiting from the perception that more powerful AI models are elevating security risks for large organisations, prompting a defensive shift in IT budgets.
Despite the uptick, investor caution remains evident. Salesforce shares experienced a sell-off on earnings day despite the company repurchasing $27 billion in stock during its most recent quarter. This divergence highlights persistent concerns regarding slowing revenue growth for software firms and the 'wait-and-see' approach adopted by enterprise clients assessing whether AI tools can replace expensive SaaS subscriptions.
The broader market context also supported the rally, with US stock markets rising on Thursday following the commencement of the Trump-Xi summit in Beijing. Positive sentiment around NVIDIA shares, which surged more than 2% after the US approved H200 chip sales to Chinese firms, contributed to the wider gain in technology equities.
However, the sustainability of this recovery faces scrutiny. Revenue growth for software firms genuinely slowed through 2025 as clients delayed purchases, and Wall Street remains wary of the potential for AI to disrupt traditional enterprise software. Investors will likely monitor future updates from major AI developers to determine if the current momentum can withstand further technological shifts.
