Key Takeaways
The software sector, battered by fears of artificial intelligence disruption, posted its largest weekly gain in over two decades as investors began to question if the sell-off was overdone. The iShares Expanded Tech-Software Sector ETF (IGV) surged 15 percent for the week, its best performance since October 2001.
"Investors are coming to the realization that the software space had priced in the worst case AI scenarios that are likely not going to come to fruition,” Robert Schein, chief investment officer at Blanke Schein Wealth Management, told Barron’s.
The rally marks a sharp reversal for a sector that had been under pressure for most of the year. The IGV fund, which holds major software players like ServiceNow, Salesforce, and Oracle, had fallen 19 percent in 2026 and was down 27 percent from its September 2025 peak. The recent rebound followed a period where software stocks repeatedly dropped in response to AI model updates from startups like Anthropic.
This rally suggests a potential shift in the narrative that AI will simply replace established software functions. The sector’s resilience was tested when Anthropic announced its latest model, Claude Opus 4.7, became generally available, yet the IGV ETF still closed up 1.7 percent that day. “Many investors beginning to understand that OAI/A [OpenAI/Anthropic] use many of the top software companies in the world to run their own business, so how could the thesis that ‘they will replace’ be true?,” Jefferies analyst Brent Thill told Barron’s.
However, not all experts are convinced the software sector is out of the woods. The rally could be a "massive short covering rally," according to research analyst Ben Reitzes, who noted that new models from OpenAI and Anthropic are still expected this year. The market's sensitivity to AI announcements was highlighted on Friday when Adobe shares dropped 1.1 percent after Anthropic launched Claude Design, a new product for creating visuals. This indicates that while the worst-case fears may have subsided, the threat of AI-driven disruption continues to create volatility for individual software stocks, impacting investor sentiment on a case-by-case basis.
This article is for informational purposes only and does not constitute investment advice.
