U.S. software stocks rebound strongly, with Oracle, which previously "halved," surging nearly 10%, marking the largest increase since September.

Overnight, US software stocks rebounded collectively, with Wall Street analysts speaking out to dismiss the doomsday theory that artificial intelligence will overthrow the software industry, claiming the market is overly pessimistic. Leading stocks like Oracle surged significantly, and the commitment of tech giants to increase capital expenditure also boosted investor confidence.

The software sector overall strengthened, with the iShares Expanded Tech-Software Sector ETF rising 3% on Monday. Previously, this ETF had plummeted about 28% from its high, as the market worried that AI would take over traditional software functions and disrupt revenue models. Wedbush Securities analyst Dan Ives said the recent “end of days” narrative around software stocks is “extremely exaggerated,” and included Salesforce and ServiceNow in the firm’s AI 30 list.

Oracle’s stock price once soared 12%, marking the largest intraday gain since September 10, and closed nearly 10% higher. D.A. Davidson analyst Gil Luria upgraded the stock from Neutral to Buy, outright stating that “software is not dead,” and that companies will continue paying for Oracle products and “won’t be casually replaced by code.”

Additionally, Amazon pledged to invest $200 billion this year in data centers, chips, and other equipment, which helped ease market concerns about AI threats. Some investors are betting that the approximately $650 billion combined AI tool expenditure by companies like Amazon, Alphabet, Meta, and Microsoft will at least partially flow into software companies.

Wall Street Fights Back Against “Doomsday” Narrative

Multiple analysts spoke out intensively on Monday to overturn the pessimistic view that the software industry faces a survival crisis. In a Sunday research report, Ives from Wedbush stated that the market is pricing in a “doomsday scenario” for software companies, and he believes this expectation is “extremely exaggerated.” He pointed out that before migration projects become less complex and less risky, clients are unlikely to risk data just to accelerate AI adoption.

Monday.com management also expressed similar views during Monday’s earnings call. Despite the stock plunging 20% due to weak revenue guidance for the quarter and full year, co-founder and co-CEO Eran Zinman said, “Customers still like our products and are looking for the best ways to leverage AI technology.” “For them, the best way is to use the systems they are already familiar with, where most data, context, and workflows are,” he said.

Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments, believes that AI and software companies can “coexist to some extent,” but the question is how much pricing power these companies can retain. She added that for those with significant declines but strong balance sheets, investors can “test the waters.”

Oracle Rebounds Significantly but Still Far Below Highs

Despite a strong rally on Monday, Oracle’s stock remains about 50% below its September 2022 high and has fallen roughly 20% year-to-date. D.A. Davidson is more optimistic about the company’s partnership with OpenAI, the developer of ChatGPT, after market skepticism about OpenAI’s profitability and the need for rapid growth to cover massive spending commitments.

Luria wrote in the report, “We are now more optimistic about OpenAI, based on its strategic shifts, new frontier models, the pressure faced by competitors like Google due to recent rise, and progress in financing.”

To meet contract demands from major cloud clients including AMD, Meta, and Nvidia, Oracle plans to raise between $45 billion and $50 billion this year to build additional capacity.

However, Melius Research analyst Ben Reitzes pointed out on Monday that Oracle “does not generate cash flow and cannot guarantee that OpenAI will beat Anthropic and Google.” Reitzes said he admires Oracle “for going all-in here, but debt and equity could become pressures over time.”

Big Tech Spending Boosts Sector Confidence

The surge in capital expenditure commitments from tech giants has become a key catalyst for the software stock rebound. Amazon’s pledge to invest $200 billion this year in data centers, chips, and other equipment helped lift market sentiment on Monday.

Some investors believe that the combined approximately $650 billion spent by Amazon, Alphabet, Meta, and Microsoft on AI tools will at least partially flow into software companies. This logic has provided support to the battered software sector.

Besides Oracle, other leading software stocks also suffered heavy declines. Salesforce has fallen about 26% so far this year, and ServiceNow declined 32%. The Tech-Software Sector ETF, which includes heavyweight stocks like Microsoft and Palantir, has fallen 20% year-to-date but rebounded 3% on Monday, indicating that investor sentiment is recovering.

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