The violent software sell-off pauses. Wall Street says bet on these stocks to bounce
Wall Street is finding buying opportunities in software after the group’s historic sell-off. Names like Intuit and CrowdStrike could be among the market’s AI-proof winners. Software stocks plunged sharply to start 2026, pushing the group in bear market territory amid concerns that artificial intelligence tools could significantly change the traditional software-as-a-Service, or SaaS, business model that relies on user-based pricing. Specifically, investors are worried that quickly developing AI tools could diminish software giants’ historically strong pricing power and high operating margins. The sell-off did pause on Tuesday. The iShares Expanded Tech-Software Sector ETF rose nearly 1.8% as several names bounced back. However, it remains down by more than 25% year to date. Tuesday’s gains came after Anthropic announced new updates to its Claude Cowork tool that allows companies to integrate the AI product into enterprise apps such as Salesforce-owned Slack, Intuit and Google’s Gmail. IGV 3M mountain IGV 3-mo chart Some analysts believe the sell-off is now overdone in companies across cybersecurity and traditional software, opening up attractive entry points for long-term investors. Jefferies analyst Brent Thill listed a handful of companies he views as “more durable vendors that are willing to disrupt themselves” and likely to succeed in the AI transition. To the benefit of software incumbents, Thill pointed out that it is more cost-effective for companies today to rely on a few key software vendors rather than building and maintaining every app on their own. He pointed out that even AI-native giants such as Anthropic use services from traditional software companies Salesforce, Workday and DataDog. Thill said he prefers Intuit , Procore Technologies , Atlassian and Salesforce given their “more durable models and internal AI adoption that underpins growth confidence.” Salesforce, down more than 29% this year, is best-positioned among apps vendors to deliver on AI agents, he said. Intuit is Jefferies’ top large-cap pick in apps as the company has applied 80 different AI model variations to 40+ years of data for ~100M customers, he added. Shares of Intuit are down about 45% this year. JPMorgan analyst Brian Essex sees opportunity within security software stocks, referring to companies that work on enterprise security needs such as cloud security and identity protection. These companies have plunged this year and swung lower on Monday on worries that Anthropic’s new security tool in its Claude model could threaten their business models. “The rotation out of Security Software has been relatively indiscriminate and, as a result, we see opportunity within our space,” Essex said in a Monday note to clients. “Mean reversion has been elusive so far, but we have had increasing interest from investors looking for exposure to AI tailwinds within Security as they feel for a bottom.” CrowdStrike , Palo Alto Networks , ZScaler and Okta are among the vendors Essex considers to be “more AI resilient” in the face of recent AI coding tools. In terms of demand, he observed increasing demand for cybersecurity solutions outside companies’ traditional security budgets, as security is becoming viewed as a key enabler for enterprise AI adoption. These companies are also seeing strong supply, he said, noting that incumbent software vendors have access to decades of data to feed into their own AI and machine learning-driven security applications. CrowdStrike has plunged nearly 25% this year as the stock remains one of the hardest-hit AI casualties. Essex defended the name, however, saying its embedded services and applications across a wide variety of global enterprise customers is “challenging to replicate.” “The more customers the vendor has, the better the platform gets. In addition to lightweight agents installed on endpoints across customer networks, CRWD has products and services across a large installed base that provide it with a vast amount of proprietary data and threat intelligence to ingest, creating a flywheel for threat detection and remediation across its platform,” Essex wrote, maintaining his overweight rating on CrowdStrike stock. Jeff Kilburg, founder & CEO of KKM Financial, is an investor sticking by certain names in the software sector after they’ve sold off amid the AI scare. Kilburg’s firm owns Oracle and Microsoft in its Essential 40 Stock ETF (ESN) . Both names are down more than 20% this year, with Oracle selling off on debt financing concerns and Microsoft on high capital expenditures and slowing growth in its Azure cloud business . ORCL MSFT 3M mountain MSFT and ORCL 3-mo chart “If we go out on a longer timeline, these are names that from a 10-year perspective, these names have delivered,” Kilburg said Monday on CNBC’s ” Halftime Report .” “This is an opportunity to buy some great names. Don’t shy away, just because everyone’s so scared.” To be sure, the Essential 40 Stock ETF’s top 10 holdings include typically defensive stocks such as Verizon , Exxon Mobil and Johnson & Johnson rather than high-growth tech names.
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