U.S. software stocks rebound, posting the best monthly performance since 2001

Strong earnings reports from Snowflake and Okta lift sentiment, and the market’s extremely pessimistic expectations about AI disrupting the software industry are beginning to ease.

Snowflake and Okta released better-than-expected earnings back to back, driving a significant rebound in U.S. software stocks this week. This led the iShares Expanded Tech-Software ETF (IGV) to a cumulative increase of 21% in May, marking its strongest monthly performance since October 2001. The previously pervasive “SaaSpocalypse”—the theory that AI will completely replace the Software as a Service industry—has been notably alleviated, at least for now.

On Thursday, Snowflake recorded its best single-day gain ever, surging nearly 50% over four trading days after the Monday holiday; identity security company Okta soared 30% in a single day on Friday, also setting a historic record. The performance of both companies shows that Wall Street’s forecasts regarding AI’s impact on the software industry may be overly pessimistic—some companies are proving to be more resilient than expected.

After this round of rebound, IGV's annual decline has narrowed to 3.8%, but it still lags far behind the Nasdaq Composite Index’s 18% increase for the same period. Structural pressures on the software sector have not entirely dissipated.

Snowflake: From Pressure Center to “Shovel Seller” in AI

Snowflake was the biggest catalyst for the software stock rebound this week. The company announced a $6 billion cloud computing and chip cooperation agreement with Amazon and raised its full-year guidance, indicating that enterprise clients are accelerating their migration to AI workloads.

“We’re also seeing customers deploying and expanding workloads at a faster pace,” CEO Sridhar Ramaswamy told analysts during the earnings call.

Argus Research characterized Snowflake as a “shovel seller” in the wave of generative AI and raised its target price from $250 to $300. In the post-earnings report, analysts wrote: “As enterprises increasingly need to unify and integrate data—which is Snowflake's core business—to fully leverage the advantages of generative AI, we believe Snowflake may actually benefit from the development of GenAI.” Snowflake stock closed at $255.55 on Friday, up 17% year-to-date.

Okta: The Agentic AI Wave Reshaping Identity Security Demand

Okta’s strong performance was also unexpected in the market. Not only did the company deliver above-expectation quarterly results, it also conveyed a crucial judgment to investors: the shift toward agentic AI is forcing enterprises to increase investment in identity security to counter the threat of ever-growing automated “zombie armies.”

“AI products take time to implement, but every organization will build and deploy intelligent agents,” Okta CEO Todd McKinnon told CNBC. “It’s essential infrastructure for the coming years.”

This narrative helped Okta reverse previous concerns that AI would erode identity management software; on Friday, its single-day gain reached 30%.

Sector-Wide Gains, but Catch-Up Task for Year Remains Challenging

The software sector's rebound wasn’t limited to Snowflake and Okta. Atlassian rose 26% this week, ServiceNow climbed over 20%, and Shopify, Workday, and Asana each gained at least 14%.

Among software giants with cloud infrastructure business, Oracle rose 16% this week, Microsoft nearly 8%—yet Microsoft is still down nearly 7% year-to-date, making it the worst-performing tech giant.

Notably, the historic reference for this rebound isn’t entirely optimistic: IGV saw a big monthly rebound in October 2001 as well, but it was just a temporary relief during the bursting of the dot-com bubble. Whether current software stocks can find solid footing still depends on the dynamic evolution of AI disruption and enterprise IT spending. The “SaaSpocalypse” may not be over—it’s just taking a temporary pause.

Risk Disclaimer and Exemption ClauseThe market carries risks, and investors should proceed with caution. This article does not constitute personal investment advice and does not take into account individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investment based on these opinions is at your own risk.