Investors are hunting for value in a part of the market that was once a growth darling: Software

Software stocks are drawing value buyers after a steep pullback, with the iShares Expanded Tech-Software Sector ETF (IGV) down 20% in 2026 and more than 29% below its 52-week high, though it has rebounded over 8% month to date in April. First Eagle highlighted Workday as deeply entrenched and unfairly sold off, noting it trades at 11x forward earnings versus about 23x for the S&P 500, while JPMorgan and D.A. Davidson flagged Adobe, ServiceNow, Dynatrace, Box, Microsoft, Oracle and Snowflake as selective opportunities. Adobe also authorized a new $25 billion buyback, reinforcing the value-case rotation within software.

Analysis

The key shift is not simply “software is cheap”; it is that the market is repricing duration inside software. Names with embedded workflow status, switching costs, and proprietary enterprise data should decouple from the cohort as investors stop treating all code-intensive businesses as equally exposed to AI displacement. That creates a narrow window where fundamentals can matter again, especially for vendors that sit on the system-of-record layer and can monetize AI as an upsell rather than face it as substitution.

Second-order, the real beneficiary may be the picks-and-shovels layer around enterprise transformation, not the most obvious AI beneficiaries. When buyers worry about obsolescence, they defer discretionary modules first, but they do not rip out core infrastructure quickly; that tends to protect large incumbents while pressuring lower-defensibility point solutions. This should also support cash-rich platforms with buybacks, since capital returns become a valuation anchor when growth multiples compress.

The main risk is a regime change in spending rather than a multiple reset. If CFOs move from “pause and reassess” to actual budget cuts over the next 1–2 quarters, even quality software can de-rate further because renewals are sticky but expansions are not. Conversely, any evidence that AI features are lifting seat counts or accelerating module adoption could re-rate the group sharply, since positioning is still fragile and under-owned after the drawdown.

The contrarian view is that the market may be underestimating how much of the selloff is mechanical rather than fundamental: when a crowded growth bucket de-risks, high-quality names get sold to fund redemptions even if their earnings streams are intact. That makes the opportunity asymmetric in select names, but not in the sector as a whole. The right way to play it is through balance-sheet quality, recurring revenue durability, and visible capital return, not a blanket “software is back” call.

Key Decisions for Investors

• Long WDAY vs short a basket of structurally weaker SaaS names over the next 1-3 months; thesis is system-of-record durability and eventual multiple mean reversion, with WDAY likely to rebound first if enterprise IT spend stabilizes.
• Buy ADBE on weakness for a 3-6 month trade, using the buyback as downside support; risk/reward improves if the stock trades near prior support because capital returns can absorb multiple compression while AI features become an ARPU tailwind.
• Pair long MSFT / short IGV for a 2-4 month relative-value position; MSFT should outperform as a scarce-quality compounder if investors keep rotating out of long-duration software beta.
• Add NOW and ORCL selectively on 2-6 week pullbacks, but only as smaller-sized longs; both have enough resilience to benefit if the market rewards platform breadth, yet they remain exposed if spending freezes broaden.
• Avoid chasing BOX, DT, and SNOW as outright longs until there is evidence of re-acceleration; consider them only as tactical trades because lower-multiple software can still stay cheap longer if AI anxiety turns into procurement delays.