US software stocks scale fresh 2026 highs as AI disruption fears fade

US software stocks touched fresh 2026 highs on Tuesday, supported by a sharp rise in earnings expectations that analysts say shows fears of AI-led disruption in the sector were largely overstated, Reuters reported.

The S&P 500 software and services index rose 1.3% on Tuesday to its highest level since November 2025, after posting its biggest quarterly jump in July-September since the second quarter of 2020.

Strong earnings from Salesforce, ServiceNow and Accenture, along with partnerships with AI labs, helped fuel a recovery that has been underway since late June. Cybersecurity stocks stood out, with CrowdStrike, Fortinet and Palo Alto Networks posting triple-digit percentage gains this year as companies spend heavily on cybersecurity in the age of AI.

“AI has been more of an enabler for a lot of these software companies, more than a disruptor,” said Adam Turnquist, chief cross-asset strategist at LPL Financial, adding that software has “recaptured the leadership reins” from semiconductors.

The sector’s expected annual earnings growth rate for 2026 has climbed to 20.6%, up from 13.8% at the end of March, according to LSEG data. The software index is up 5% this year, while the Philadelphia semiconductor index has surged 87.5% in 2026 but is well off its highs.

The rally marks a sharp reversal from the “SaaSpocalypse” selloff, when the index lost more than 26% from late January to its April low on fears companies would build applications in-house with AI. “The whole SaaSpocalypse didn’t happen anywhere near as fast as some of the people on Wall Street thought it would,” said Rebecca Wettemann, CEO of technology research firm Valoir. Risks remain, with Zacks’ Brian Mulberry warning the real test could come in the second half of 2027.

Sources: Reuters (Oct 6, opened first-hand)