Software stocks staged a dramatic rebound this week, with Oracle Corp. surging 18% and Microsoft Corp. climbing 6% amid investor optimism that AI fears are overblown. The iShares Expanded Tech-Software Sector ETF (IGV) rebounded 6.4% in two days, though it remains down 25% year-to-date. Analysts argue the sector’s fundamentals outweigh apocalyptic AI narratives, as profit estimates for 2027 rose to 16.5% from 15.7% in February.

Microsoft and Oracle stand out as turnarounds, with valuations now trading below historical averages. Salesforce Inc. trades at 13x earnings, a fraction of its 10-year average of 45x, while Adobe sits below 10x, near record lows. This compression reflects broader skepticism about long-term demand for traditional software, despite AI’s nascent impact on pricing power and margins.

Michael Burry, famed for betting against Lehman Brothers, signaled confidence by buying Veeva Systems, Autodesk, and Adobe shares, calling the sector “attractive” despite lingering volatility. Technical indicators suggest a potential double-bottom breakout if the S&P Tech Software Index surpasses 1,908, though analysts caution the downtrend remains intact.

Caution persists: Anthropic’s AI tool announcement triggered profit-taking, underscoring jittery sentiment. Critics like Brad Conger of Hirtle Callaghan warn valuations could mask hidden risks, as AI disruption accelerates. Yet Jonathan Dane of Defiant Capital notes Microsoft and Oracle’s resilience, betting the sector will “clear out the underbrush” before stronger players emerge.