There’s a bottom in place for software stocks after horrid start to 2026, says BTIG

BTIG's Jonathan Krinsky said the iShares Expanded Tech-Software ETF (IGV) has likely bottomed, with RSI rebounding to 46 from under 20 earlier in 2026 and the ETF back above $77 on heavy volume. IGV is still down 24% this year after AI-driven fears pressured software stocks, but the technical setup suggests near-term downside may be limited. The fund is trading around $80 versus Friday's low of $73.93.

Analysis

The setup is less about “software is cheap” and more about positioning undercrowding after a violent de-grossing. A rebound in momentum from oversold levels tends to trigger systematic re-risking first, then discretionary short-covering, which can create a sharper move than fundamentals alone would justify over the next 1-3 weeks. The key second-order effect is that software names with the cleanest recurring revenue and strongest free-cash-flow conversion should re-rate first, while lower-quality, AI-disrupted business models may lag or even keep drifting lower.

The market may be missing that AI is not a monolithic headwind for all software; it is increasingly a margin tool for incumbents with scale, distribution, and data moats. If investors conclude that AI primarily compresses low-end point solutions while expanding the value of workflow platforms, the rebound could broaden into a factor rotation within software rather than a simple beta squeeze. That argues for owning profitable platform software over unprofitable growth, because the first group can absorb AI capex and still defend margins.

The contrarian risk is that this is still only a technical bounce inside a larger structural de-rating. If enterprise IT budgets soften again or a major AI vendor launches more bundled functionality, the group could roll over quickly, especially in names with high gross retention reliance and weak price discipline. The clean invalidation level is the recent low area: a fast reclaim followed by higher-volume stabilization favors a tactical long, but losing that floor again would suggest the downtrend is still intact on a months-long horizon.

Key Decisions for Investors

• Tactically long IGV for 1-3 weeks on a risk-defined basis; use the recent low as the stop and size for a 1.5-2.0x upside/downside if the short-covering phase extends.
• Rotate into profitable platform software vs. cash-burning application names: long a basket of high FCF, mission-critical vendors and short the weakest unprofitable software cohort over 1-3 months.
• Buy IGV call spreads 1-2 months out to express a continued technical squeeze while capping premium burn; structure around the current range with the recent low as the thesis break.
• If the ETF loses the reclaimed support level again on rising volume, flip to short via puts or a short IGV / long XLK pair for 4-8 weeks, targeting a renewed relative underperformance.
• Avoid chasing lower-quality AI-exposed software on the bounce; prefer waiting for confirmation that buying is being led by fundamentals rather than pure mean reversion.