BY EMMANUEL OGBONNA
Shares of major U.S. software companies moved higher on Tuesday as investors returned to a sector that has struggled for much of the year amid concerns that advances in artificial intelligence could disrupt traditional business models across the technology industry.
The rebound in software stocks came as semiconductor shares retreated following months of explosive gains driven by enthusiasm surrounding the AI boom. Investors appeared to rotate funds away from chipmakers and back into software companies, signaling a possible shift in market sentiment after a prolonged period of pressure on the sector.
The iShares Expanded Tech-Software Sector ETF climbed to its highest level since January during trading before trimming some of its gains later in the session. Several prominent enterprise software firms posted solid advances, with shares of Workday, ServiceNow and Salesforce rising between 1.4% and 2.4%.
Cybersecurity companies also attracted renewed investor interest. CrowdStrike, Okta, SailPoint and Zscaler all recorded gains ranging from roughly 1% to 2.6%, while the Amplify Cybersecurity ETF briefly touched a record high before easing slightly. Analysts said the strong performance in cybersecurity reflected continued confidence that demand for digital protection tools will remain robust even as AI reshapes the broader technology landscape.
The rally offered a measure of relief for software investors after months of steep declines that erased billions of dollars in market value from the sector. Throughout the year, software companies faced growing scrutiny from investors worried that generative AI technologies could weaken pricing power, reduce the need for large workforces and fundamentally alter the economics of traditional subscription-based software businesses.
At the same time, semiconductor manufacturers surged as investors poured money into companies supplying the chips and infrastructure powering the AI expansion. The Philadelphia Semiconductor Index recently reached record highs after a powerful rally fueled by soaring demand for advanced AI processors and data-center hardware.
Tuesday’s trading, however, suggested that investors may now be taking a more nuanced approach toward technology stocks, distinguishing between software firms viewed as vulnerable to AI disruption and those considered well-positioned to benefit from the next wave of technological adoption.
Market analysts said some software companies are increasingly being seen as potential beneficiaries of AI rather than casualties of it. Businesses that successfully integrate AI tools into their existing platforms could improve productivity, strengthen customer retention and generate new revenue opportunities.
Gregg Moskowitz, senior enterprise software analyst at Mizuho, said there are still attractive long-term opportunities within the software industry despite the difficult environment the sector has faced this year.
Analysts noted that companies with deeply embedded enterprise platforms may prove more resilient because large corporate customers are unlikely to rapidly replace critical systems that manage operations, workflows and customer relationships.
That distinction became especially visible in differing analyst views on two major software companies. Analysts at BofA Global Research recently issued a favorable recommendation on ServiceNow, describing the company as highly entrenched within large enterprise operations and therefore difficult to displace.
In contrast, the same analysts expressed concerns about Salesforce, arguing that the company faces structural challenges as AI changes the competitive dynamics of customer relationship management software. Investors have increasingly questioned whether traditional subscription-based models can maintain the same growth rates and profitability in an AI-driven environment.
Anthony Saglimbene, chief market strategist at Ameriprise Financial, said investors are beginning to separate companies dependent on older software models from firms positioned closer to the center of AI development and deployment.
According to market observers, the current shift reflects a broader reassessment of how AI will affect the technology industry. Earlier fears that artificial intelligence would broadly undermine software businesses are gradually giving way to more selective evaluations based on each company’s ability to adapt and innovate.
Despite Tuesday’s gains, skepticism remains across Wall Street. Many investors continue to demand clearer evidence that software companies can defend profit margins, maintain customer loyalty and successfully incorporate AI into their long-term strategies.
The sector still remains significantly lower for the year. The iShares Expanded Tech-Software Sector ETF has fallen more than 12% since the start of 2026, while the S&P 500 software and services index has dropped nearly 14%.
Even so, some analysts believe the recent rebound could mark the early stages of a broader recovery if software firms demonstrate that AI can enhance rather than replace their core businesses. Future earnings reports and corporate guidance are expected to play a major role in determining whether investor confidence continues to improve in the months ahead.
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