The iShares Expanded Tech-Software Sector ETF has climbed about 17 per cent since the end of the first half, reversing part of a 14 per cent decline during the opening six months of 2026, when investors heavily favoured chipmakers and other AI infrastructure plays. Over the same period, the Philadelphia Semiconductor Index has fallen roughly 19 per cent after doubling in the first half.
The shift follows an earnings season in which every software company in the S&P 500 beat profit expectations, with the average surprise exceeding 13 per cent. More than 80 per cent also reported revenue above forecasts, helping counter the argument that generative AI was already eroding demand for established enterprise software.
Microsoft provided one of the strongest signals. The company reported quarterly revenue of $90 billion for the three months ended June 30, up 18 per cent from a year earlier, while Azure and other cloud services revenue rose 43 per cent. Microsoft Cloud revenue increased 27 per cent to $59.3 billion, reinforcing the view that established software and cloud platforms can benefit from AI demand rather than merely be displaced by it.
Salesforce also strengthened sentiment after lifting its annual revenue and profit forecasts following fiscal second-quarter results. Quarterly revenue rose 11 per cent to $11.35 billion, while the company expanded its work with Anthropic through Claudeforce, which connects Salesforce data and workflows with Claude models. The shares surged after the results, reflecting investor relief that the company’s core business was still growing while it added AI products.
ServiceNow delivered another encouraging set of figures. Second-quarter subscription revenue rose 24.5 per cent from a year earlier to $3.88 billion, while total revenue increased 24 per cent to $3.99 billion. The company said its AI business crossed $1 billion in annual contract value during the quarter and raised its full-year subscription revenue outlook.
The breadth of the move has also changed the market debate. Investors who had treated software as a broad casualty of AI are increasingly separating vendors with entrenched enterprise data, recurring contracts and distribution from weaker application providers.
Snowflake and Palantir also benefited from stronger growth and upbeat guidance. Snowflake has reported continued expansion in product revenue and remaining performance obligations, while Palantir’s outlook highlighted sustained demand for data and AI platforms. Together, the results have helped investors distinguish between software companies that may be disrupted by AI and those positioned to sell tools, infrastructure and applications built around it.
Sentiment received another boost after leading AI executives called for greater caution in pushing toward increasingly powerful models. Anthropic chief executive Dario Amodei has argued for slower development amid concerns about safety and misuse, while other industry leaders have also backed stronger safeguards. The comments encouraged a rapid rotation on Monday, when the software ETF jumped about 5 per cent while the semiconductor index dropped 5.9 per cent, the widest one-day performance gap between the two since comparable data began in 2001.
Cybersecurity shares have been especially strong. A Goldman Sachs basket of cybersecurity stocks has risen about 65 per cent this year, reflecting expectations that more capable AI systems will also increase demand for security, monitoring and identity-protection software.
The rebound does not remove longer-term concerns. AI agents are increasingly capable of writing code, automating workflows and replacing tasks once handled through conventional software interfaces. That raises questions about pricing, seat-based subscription models and whether customers will need as many standalone applications.
Analysts nevertheless expect earnings momentum to remain solid. Current estimates point to earnings growth of about 13.8 per cent for the S&P 500 software and services sector in 2027 and 20.8 per cent in 2028, with revenue growth also projected to accelerate.
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