Software Sector Faces Renewed AI Doubts, Investors Weigh Options

The software sector is experiencing a familiar pattern of volatility, with recent gains fading as investors grapple with uncertainty surrounding the impact of artificial intelligence (AI) on valuations and growth. The iShares Expanded Tech-Software Sector ETF (IGV) has reversed course this week, highlighting the fragility of the recent rebound.

Recent Rally Proves Short-Lived

Just a week after staging its strongest rally in nearly a year, the software group is once again under pressure. The IGV ETF, a key benchmark for the sector, has fallen back into negative territory. Adobe (ADBE) serves as a stark reminder of the risks, with its stock significantly underperforming this year.

The initial bounce, which saw the IGV climb approximately 15% from its February 23rd low, included gains for companies like Cloudflare (NET), CrowdStrike (CRWD), Datadog (DDOG), Intuit (INTU), and Thomson Reuters (TRI). But, these gains proved unsustainable, and the sector has largely retreated.

Technical Resistance and Investor Skepticism

The rally encountered strong resistance near the $88 level, a key Fibonacci retracement point. This level attracted selling pressure from short-sellers, preventing the software sector from establishing sustained momentum. Unlike strong leadership, software failed to break through this initial test.

Adobe’s Struggles Reflect Broader Concerns

Adobe’s recent earnings report and surprise CEO succession announcement triggered a sharp decline in its stock price, exacerbating the turmoil in the software sector. The stock is down over 25% year-to-date and is approaching levels not seen since 2019. This decline underscores the lack of a clear turnaround for the company, leaving investors wary.

AI: Tailwind or Headwind?

The current market sentiment suggests that AI is not yet translating into tangible benefits for software companies. While companies tout the potential of AI-powered copilots and productivity gains, investors are demanding concrete evidence of its impact on pricing, margins, and revenue generation. Until such evidence emerges, AI may be perceived as a valuation headwind rather than a growth catalyst.

Expert Commentary

Lee Munson, president and chief investment officer at Portfolio Wealth Advisors, expressed a pessimistic outlook on the software sector, stating that “software multiples can head lower” and characterizing the sector as “dead money right now from a chart perspective.” Yahoo Finance

Looking Ahead

For the software sector to transition from a tradable bounce to a sustained leadership position, investors will likely require two key developments: a breakout above key resistance levels on technical charts and demonstrable proof that AI is driving positive business outcomes. Until then, the sector is likely to remain a trading opportunity rather than a long-term investment.

As of March 13, 2026, the iShares Expanded Tech-Software Sector ETF (IGV) had an AI Score of 9/10, indicating a “Buy” rating, according to Danelfin AI. The ETF’s focus on the Information Technology sector is considered a positive factor.