US software stocks stage rebound as investors reassess AI disruption risks

US software stocks are on track for a fourth consecutive session of gains on Tuesday, marking a potential recovery after being battered throughout the year by investor fears regarding artificial intelligence disruption. The iShares Expanded Tech-Software Sector ETF rose 1.1%, reaching its highest level since January, while the broader sector attempts to stabilise following a painful valuation reset.

The rebound coincides with a cooling off in chipmaker stocks, which had previously rallied to a record high for the Philadelphia SE Semiconductor Index earlier in the month. Major software firms including Workday, ServiceNow, and Salesforce rose between 3.7% and 4.3%, while cybersecurity companies such as CrowdStrike, Okta, SailPoint, and Zscaler gained between 1.2% and 2.5%.

These gains suggest a possible shift in investor sentiment, with markets becoming more selective in distinguishing between companies genuinely at risk of AI disruption and those that may benefit from higher productivity or new products. The divergence in outlook was evident on Monday, with analysts at BofA Global Research highlighting contrasting views on specific industry players.

ServiceNow was given a "buy" rating, described as "difficult to challenge" due to its entrenched position in large enterprise workflows. In contrast, Salesforce was reinstated with an "underperform" rating, with analysts citing a "structural shift that permanently impairs Salesforce's business model."

Despite the recent rally, the sector remains significantly down for the year. As of Monday’s close, the iShares ETF was down 12.2% and the S&P 500 software and services index was down 13.7%. A sustained rebound may need to extend further to convince skeptics, as investors are likely to demand clearer evidence that software companies can defend their profit margins against competitive threats posed by AI.