Earlier this spring, I authored ‘Software’s Selloff’ and ‘Software’s Selloff (Revisited)’ detailing the price deterioration across stocks within the software industry. Analyzing data from past software selloffs hinted at some key takeaways: the selloff was ‘young’ in February (and could have taken longer to bottom), and it was deep enough that investors could have expected significant earnings deterioration. With two earnings seasons in the books since then, investors appear to have leaned back into the industry. Key stocks in the industry surged last week on the heels of their respective earnings report and have helped turn Software’s Selloff into a Surge.
A Bumpy Ride
Over the past eight years, the software industry (proxied by IGV) has entered ‘bear market’ territory – defined as a decline of 20% from recent high prices – five distinct times: late 2018, early 2020, 2022, early 2025, and now in 2026. To say it’s been a bumpy ride for software investors might be an understatement.
However, not all of these drawdowns are created equal. In two cases, the decline was largely a ‘price scare’ – where valuation compressed more than earnings and led to the price declining much more than earnings. The other two bear markets for software were driven largely by lower realized earnings, as shown in the chart below.
IGV traded at its 52-week low on April 10, 2026. Should this low hold as the trough of 2026’s software bear market, it would register as a 36% drawdown over 30 weeks, nearly exactly the average time and drawdown of earnings-led bear markets, as shown in the chart above. The industry has been on a tear since those most recent lows, with IGV now in only a -6.5% drawdown from its most recent all-time highs in September 2025. It may be fair to say that Software’s Selloff has turned into a Surge.
Earnings Commentary
Earnings commentary from industry heavyweights last week aided this recovery. Whereas investors may have been concerned about competitive threats introduced by AI disruptors, Salesforce and CrowdStrike offered insights as to how new AI products may actually be propelling their business forward.
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- Salesforce CEO Marc Benioff and Anthropic CEO Dario Amodei joined forces for Salesforce’s earnings call. Salesforce introduced a potentially revolutionary new product called Claudeforce designed to “bring Claude’s intelligence and reasoning together with Salesforce’s trusted enterprise data, workflows, business logic and governance to power agentic experiences.”1 Salesforce stock surged 22% last week on the heels of this announcement and its earnings, with investors’ fears of disruption potentially being allayed.
- CrowdStrike CEO George Kurtz used the company’s earnings report to detail how products launched by AI disruptors potentially enhance the company’s growth outlook, noting, “The Mythos moment translated into mass-market acceptance that AI adoption needs security, and that’s CrowdStrike. Every enterprise will run on AI, and securing it is the largest market opportunity in our history.”2 Shares of CrowdStrike surged more than 20% the day after its earnings report.
These industry heavyweights helped change the narrative software investors have heard recently. Although software stocks endured a brutal bear market earlier in the year, earnings have not contracted much. Perhaps investors were hesitant based on narratives, and not on numbers. Those concerning narratives included heightened competitive fears as AI disruptors quickly launched innovative products, but many software companies may simply have been late to market and not out of the market. The earnings reports delivered by industry heavyweights last week further changed Software’s Selloff into a Surge.
- https://www.salesforce.com/news/press-releases/2026/08/26/salesforce-and-anthropic-announce-claudeforce/
- https://ir.crowdstrike.com/news-releases/news-release-details/crowdstrike-reports-second-quarter-fiscal-year-2027-financial
For more content by Blake Anderson, CFA®, Director, Portfolio Management, click here.
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