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Software stocks rally fades as investors brace for AI disruption
After a blistering 42% recovery from April lows, the software sector is losing steam as traders weigh whether AI is a growth engine or an existential threat
The iShares Expanded Tech-Software Sector ETF (IGV), the benchmark tracker for enterprise software names, rallied nearly 42% from its April lows through early June 2026. That recovery came after a brutal start to the year that erased nearly $1 trillion in market value from the sector.
The whiplash year for software
New AI automation tools introduced by Anthropic sent a shockwave through enterprise software, forcing investors to reconsider the pricing power and long-term relevance of traditional SaaS business models. Salesforce shares plummeted roughly 26-30%. Workday dropped about 33%. The collective damage approached $1 trillion in lost market capitalization across the software sector.
ServiceNow posted its highest monthly gain since 2012, surging over 40% in May alone. Nvidia CEO Jensen Huang stated in early June that AI agents would actually increase demand for software platforms, not replace them. The IGV ETF responded accordingly, ripping higher and reclaiming a substantial chunk of its earlier losses.
Momentum hits a wall
A notable trading session on June 2 illustrated the fragility of the current environment. The software sector staged a 6% one-day rally, only to give back 3% almost immediately afterward.
Without fresh catalysts on the horizon, the sector appears to be entering a consolidation phase. Earnings season provided the initial jolt. Jensen Huang’s comments added a second wind. Geopolitical tensions continue to linger in the background, adding another layer of unpredictability.
What this means for investors
ServiceNow’s 40%-plus May rally demonstrated what the market is willing to pay for companies that can prove AI enhances their product rather than threatens it.
Analysts have flagged companies like Snowflake and Workday as potentially resilient or undervalued despite their rough year-to-date performance.
The 6%-up, 3%-down trading pattern from early June is a reminder that volatility cuts both ways, and getting caught on the wrong side of a sentiment swing can erase weeks of gains in a single session.