US software stocks are scaling up to fresh 2026 highs as sharply improving earnings expectations ease concerns that artificial intelligence will disrupt the industry as severely as initially feared, Reuters reported.

The S&P 500 software and services index rose 1.3% on Tuesday to its highest level since November 2025. It also recorded its biggest quarterly gain since the second quarter of 2020 during the July-September period.

Strong results from Salesforce, ServiceNow and Accenture, along with partnerships with AI developers, have helped drive the sector’s recovery since late June.

Cybersecurity companies have led the rebound. CrowdStrike, Fortinet and Palo Alto Networks have posted triple-digit percentage gains this year as businesses ramp up security spending in the AI era.

“AI has been more of an enabler for a lot of these software companies, more than a disruptor,” said Adam Turnquist, chief cross-asset strategist at LPL Financial, according to Reuters. “We’re seeing more of a trend change now where software has recaptured the leadership reins, and we think there’s a window here for outperformance in software over semiconductors.”

The software index has gained 5% this year. In comparison, the Philadelphia Semiconductor Index has surged 87.5% in 2026, although it has retreated from its highs.

The software sector’s projected earnings growth for 2026 has risen to 20.6% from 13.8% at the end of March, according to LSEG data.

‘SaaSpocalypse’ fears ease

The software index fell more than 26% between late January and its April low during a selloff dubbed the “SaaSpocalypse.” Investors feared companies could use AI to develop applications internally at a lower cost, reducing demand for traditional software providers.

Analysts now say those concerns outpaced the available evidence.

“The whole SaaSpocalypse didn’t happen anywhere near as fast as some of the people on Wall Street thought it would,” said Rebecca Wettemann, CEO of technology research firm Valoir, adding that vendors were reporting stronger customer adoption as AI moved beyond the experimental stage.

Risks remain as the rapidly evolving technology reshapes business models.

Brian Mulberry, chief market strategist at Zacks Investment Management, told Reuters that the sector could face its biggest test in the second half of 2027, when greater data-centre capacity may make AI coding tools a more significant threat to traditional software companies.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)