Software stocks rallied sharply before retreating. The iShares Expanded Tech-Software Sector ETF, IGV, jumped 16% over three days after strong earnings, only to fall back on June 1. Since then it has lost every gain, dragging the sector down more than 12% for the year, while the broader S&P 500 rose 7.9%.

Investors fear AI could make software products obsolete. Mike Bell, head of market strategy at RBC BlueBay, warned that the threat is existential because AI can replicate software functions. Bell said the uncertainty is higher than ever, compressing earnings multiples that once topped the tech sector.

This earnings cycle remains bright for many. Ninety percent of software firms in the S&P 500 beat profit estimates versus 82 percent of the broader index, Bloomberg data shows. Snowflake, Datadog, DigitalOcean and JFrog posted robust results, while cybersecurity names continue to shine.

Adobe, down 32% this year, faces scrutiny as AI threatens its creative tools. Despite a low valuation under ten times earnings, investors hesitate, noting Adobe’s shaky competitive moat. Meanwhile, Anthropic and OpenAI IPOs could siphon liquidity from legacy software stocks, prompting managers like Ruffer to favor firms with solid enterprise clients.