Key Takeaways
- Global software stocks have been unloved over the past year, amid fears of AI disruption.
- As investor anxiety grows around chip stocks, some investors are rotating back into software.
- Software stocks now look cheap, yet earnings continue to show promising growth, according to analysts.
As the semiconductor stocks that had been the big winners in 2026 nosedive, some investors are returning to unloved software stocks.
Chip stocks sold off sharply again this week, highlighting persistent investor anxiety around artificial intelligence spending and whether returns can ultimately justify lofty share prices. Shares of memory chip stocks like Samsung 005930, SK Hynix 000660, Intel INTC, and Micron MU were some of the hardest hit, each dropping by around a third over the past month. The Morningstar Global Semiconductor Index, which gained 60% through the first half of 2026, is now down 17% from its June peak.
Once-maligned software stocks are benefiting from that selling, with investors drawn by attractive valuations and the potential to leverage the AI boom. The Morningstar Global Software - App Index has rebounded 16% from its June low, having shed 30% in the first half of the year. Salesforce CRM, Workday, and ServiceNow are all up 15%-25% over the past week.
ING global chief investment officer Bob Homan says the firm has recently grown “more cautious” on semiconductors, and that it has been unwinding its holdings somewhat over the last several weeks. “I think the fast money is a little bit behind it,” he says, drawing parallels with record runs in Bitcoin and gold in previous years. “We are making a bit of a switch from semiconductors to more software stocks,” he adds. He cites renewed interest in recently discounted stocks like Adobe ADBE (down 30% so far this year), Microsoft MSFT (down 17%), and Salesforce (down 28%). “They are very beaten down lately, so we are picking up on those stocks and selling a bit of the semiconductors.”
Software Earnings Continue to Rise Apace
Global software-as-a-service stocks have been beaten up for much of this year, after the release of a Claude large language model in late February sparked fears that they would be among the names most readily disrupted by AI. However, ING’s Homan says they have not yet seen evidence of those risks in earnings.
Estimates for US software companies’ 2026 earnings continue to be revised upwards, with the consensus pointing toward 24% earnings growth this year, according to Deutsche Bank. Meanwhile, software valuations remain historically low. US software currently trades at just a 6% premium to the S&P 500, compared with a 10-year average premium of 36%
Deutsche Bank analysts, led by Maximilian Uller, head of European equity and cross-asset strategy, also say they continue to like software. They note that investors have “cautiously started to rotate away” from crowded semi stocks into software. Indeed, the bank adds that the sector can offer a positive counter to recent sharp selloffs in chip stocks. “[Software] sees little selling pressure when semis outperform, but it outperforms when semis sell off, and it thus provides a good hedge against the volatility in semis,” the team wrote in a recent note.
Saas Stocks Oversold on AI Disruption Fears
Earlier this year, Morningstar downgraded the moat ratings on several software and IT services stocks following the February selloff. However, Morningstar chief European market strategist Michael Field says many others remain insulated, and that a recent downward trend in sales is more likely due to clients reducing budgets than cutting software services entirely.
“Unlike some investors who have been shying away from the sector, we believe there are many stocks in both categories that are not significantly impaired by these trends,” says Field. “We believe software revenue could start to trend more positively in the near term.”
