Why some Wall Street analysts are warning that software stocks' fresh rally might not last
NYSE
- Software stocks have rallied as risk sentiment is revived on Wall Street.
- BofA analysts say the rally might not last, and expect volatility.
- Piper Sandler warned that there are months of technical damage for software to repair before recovering.
Software stocks have bounced back after the first-quarter SaaSpocalypse, but investing pros say the rally could be short-lived
Software popped as risk-on sentiment was reignited on Wall Street following the US-Iran ceasefire, but analysts at Bank of America and Piper Sandler have both warned that technical indicators signal the gains won't last.
The iShares Expanded Tech-Software Sector ETF has gained over 12% this week. The dramatic run-up hasn't been enough to erase earlier losses, with the ETF still down 19% since the start of 2026.
Software stocks were the focus of the market's AI panic trade earlier this year, with investors worried that the technology would dethrone software leaders. The SaaSpocalypse that ensued took down shares of software makers primarily, but the panic also spread to other areas like wealth management and insurance sectors.
But now, software is rallying again, with the Nasdaq Composite hitting record highs this week.
Piper Sandler described software stocks' move as a "big mean-reversion rally from recent oversold conditions." Bank of America analysts said that the sector's recent gains could reflect "bottom fishing."
"Down as much as ~37% from its September peak, the fifth wave down may be over," they wrote. The IGV ETF has more than reclaimed its 200-day moving average as selling pressures ease.
They said that the strong upward Nasdaq Composite amid the broader relief rally move could serve to reboot software, but the technical analysis paints a more complicated picture.
"A rising tide may help lift software names, but bottom confirmation and macro stability in the coming weeks is critical," Bank of America's technical strategy team said.
They noted there's no bottom pattern yet, meaning there's no clear sign that software has already hit its low, and more volatility is likely ahead.
Piper Sandler's technical analysts made a similar point, flagging that software has reclaimed its 50-day moving average, but noting that the space "still has months of technical damage to repair."
"We'd limit exposure to the mean-reversion relief rallies in broken sectors. 'Dip your toes' in them if you want, just recognize they face a long uphill battle back to highs," they wrote.
Bank of America suggested a stock picking strategy for investors in the software space, saying that Oracle, Microsoft, and Palo Alto Networks have more constructive charts.