Software stocks staged their strongest monthly rally in two years as investors rewrote the AI thesis from existential threat to growth catalyst.
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Software stocks surge 17% as AI disruption fears fade across sector
Software stocks staged their strongest monthly rally in two years as investors rewrote the AI thesis from existential threat to growth catalyst.
Software stocks surged Monday, extending a monthlong rebound, as Nvidia's Jensen Huang pushed back against fears that agentic AI would displace traditional software vendors, reframing the technology as a demand accelerant instead.
"A lot of people have said, 'AI is coming, therefore all software companies are going to go out of business.' It's exactly the opposite," Huang said Monday at the Computex conference in Taiwan. "Because there are going to be many agents doing work, they're going to be using more tools than ever."
The iShares Expanded Tech-Software Sector ETF gained 17% over the past month, its best four-week stretch since early 2024, though it remains down roughly 4% year to date. ServiceNow jumped 10% in premarket trading Monday after surging 14% on Friday, bringing its one-month gain to 36%. IBM rose 11% premarket, extending a 28% monthly rally, while Salesforce added more than 6%.
The reversal has added tens of billions in market value across the sector. Bank of America reinstated ServiceNow with a Buy rating and $130 price target, calling its workflow platform a potential "control tower" for enterprise AI operations. Barclays initiated IBM at Overweight with a $350 target, citing sticky software revenue from regulated-industry clients.
Snowflake's reacceleration leads the data parade
Snowflake posted the strongest evidence that AI is pulling workloads onto software platforms rather than replacing them. Fiscal first-quarter product revenue rose 34 percent year over year to $1.33 billion, accelerating from 30 percent in the prior quarter and marking the strongest sequential dollar growth in company history. Remaining performance obligations hit $9.21 billion, up 38 percent, while net revenue retention ticked up to 126 percent from 125 percent. The stock surged 35 percent in a single session after the report and now trades near $255, up about 17 percent in 2026.
Datadog reached a similar inflection point earlier. First-quarter revenue rose 32 percent to just over $1 billion — its first billion-dollar quarter — accelerating from 29 percent in the prior period. The stock has climbed more than 80 percent in 2026, trading near a 52-week high, as analysts highlighted its observability leadership in increasingly complex AI-driven cloud environments.
MongoDB rounded out the earnings picture with fiscal first-quarter revenue of $687.6 million, up 25 percent, as its Atlas cloud database grew 29 percent and now represents roughly three-quarters of total revenue. The company raised its full-year guidance.
Valuation questions linger after the run
The rally has been broad but uneven. Atlassian rebounded nearly 60 percent over three months but remains down roughly 30 percent year to date, even as EPS estimates for fiscal 2026 and 2027 rose 17 percent and 13 percent, respectively, in the last 60 days. Docusign climbed 15 percent over the past month on growing adoption of its Intelligent Agreement Management platform but still trades about 40 percent below its 52-week high of $94. Intuit, down more than 40 percent in 2026 near $350, has seen FY26 and FY27 EPS estimates edge higher even as the stock sits well below its $800 all-time high.
The easy gains may be behind the group. Snowflake trades at 17 times forward sales, a valuation that assumes its reacceleration holds for years and that the company begins reporting substantial GAAP profits. Its consumption-based revenue model also cuts both ways: if enterprise AI spending cools, growth could fade quickly regardless of customer count.
For investors, the question is whether the sector's rerating has further to run. Software stocks entered the year priced for disruption and are now pricing in a recovery that, for some names, has already arrived in the numbers. The next wave of earnings will test whether the AI-as-catalyst thesis holds across the broader software landscape — or whether the market has gotten ahead of the data.
This article is for informational purposes only and does not constitute investment advice.
