3 reasons software stocks are making a comeback

August 31, 2026 - 17:46

The software sector is showing signs of life again, with the iShares Expanded Tech-Software Sector ETF (IGV) climbing back into positive territory after a rough stretch that had investors spooked. For months, the group was dragged down by fears that artificial intelligence would upend traditional software business models, making many legacy products feel suddenly obsolete. But that narrative is starting to shift.

Pat Walravens, who leads technology equity research at Citizens, sat down with Market Domination host Josh Lipton to break down what is driving the rebound. He pointed to three key factors behind the turnaround. First, valuations have reset to more reasonable levels after the selloff, giving buyers a fresh entry point. Second, companies are beginning to show that AI can actually be a tailwind rather than just a threat, with several firms rolling out new AI-powered features that customers are willing to pay for. And third, the macro picture has stabilized enough that enterprise budgets are no longer freezing up, which was a major drag on new deals earlier this year.

Walravens cautioned that the recovery may not be uniform. He expects the strongest performers to be those with clear AI integration strategies and recurring revenue models, while weaker players could still struggle. Looking ahead, he sees the next few quarters as a test of whether software firms can turn AI hype into real earnings growth. If they can, the sector could sustain its momentum; if not, the recent bounce might just be another head fake in a choppy market. For now, the green on the screen is a welcome change for a group that had been left for dead.