U.S. software stocks rebounded strongly, with Oracle, which was previously "cut in half," surging nearly 10%, marking its biggest gain since September.

U.S. software stocks rebounded strongly, with Oracle, which was previously "cut in half," surging nearly 10%, marking its biggest gain since September.

Overnight, U.S. software stocks collectively rebounded as Wall Street analysts spoke out against the “doomsday theory” that artificial intelligence will disrupt the software industry, saying the market is excessively pessimistic. Leading stocks such as Oracle saw sharp rebounds, and the tech giants’ commitments to increasing capital expenditures also helped boost investor confidence.

The software sector strengthened overall, with the iShares Expanded Tech-Software Sector ETF rising 3% on Monday, after the ETF had previously plunged about 28% from its highs amid market concerns that AI would take over traditional software functions and disrupt its revenue model. Wedbush Securities analyst Dan Ives called the recent “doomsday” narrative for software stocks “extremely exaggerated” and added Salesforce and ServiceNow to the firm’s AI 30 list.

Oracle’s share price soared as much as 12%, marking its largest intraday gain since September 10, and closed up nearly 10%. D.A. Davidson analyst Gil Luria upgraded the stock’s rating from neutral to buy, stating bluntly that “software is not dead” and that companies will continue to pay for Oracle products, which “cannot be casually replaced by coding.”

Additionally, Amazon’s promise to invest $200 billion this year in data centers, chips, and equipment helped ease market concerns over AI threats. Some investors are betting that at least part of the roughly $650 billion in AI tools spending from Amazon, Alphabet, Meta, and Microsoft will flow to software companies.

Wall Street Responds Collectively to ‘Doomsday’ Narrative

Several analysts spoke out intensively on Monday to refute the pessimistic narrative of an existential crisis facing the software industry. Wedbush’s Ives said in a Sunday research report that the market is pricing in a “doomsday scenario” for software companies, which he believes is “extremely exaggerated.” He pointed out that clients are unlikely to risk data security to accelerate AI adoption until migration projects become less complex and risky.

Monday.com’s management expressed a similar viewpoint on the company’s Monday earnings call. Although its stock plunged 20% due to weak quarterly and annual revenue forecasts, co-founder and co-CEO Eran Zinman said, customers still love their products and are seeking the best ways to leverage AI technologies. “For them, the best way is to use the systems they were already using, which contain most of their data, context, and workflows,” he said.

Victoria Fernandez, chief market strategist at Crossmark Global Investments, believes AI and software companies can “coexist to some extent, but the question is how much pricing power these companies can retain.” She added that investors could “dip their toes” into companies that have seen major declines but possess strong balance sheets.

Oracle’s Sharp Rebound Still Far Below Highs

Despite Monday’s surge, Oracle shares are still down about 50% from last September’s highs and have fallen roughly 20% year-to-date. D.A. Davidson is more optimistic about Oracle’s partnership with ChatGPT developer OpenAI, while the market has previously questioned OpenAI’s lack of profitability and need for rapid revenue growth to meet substantial spending commitments.

Luria wrote in a research report, “We are now more optimistic on OpenAI, based on its strategic changes, new frontier models, the pressure on Google competitors due to its recent ascent, and progress in financing.”

To meet contract demand from major cloud customers such as AMD, Meta, and Nvidia, Oracle plans to raise $45–50 billion this year to build additional capacity.

However, Melius Research analyst Ben Reitzes pointed out Monday that Oracle “does not generate cash flow, and there is no guarantee that OpenAI can beat Anthropic and Google.” Reitzes stated that he admires Oracle’s “all-out effort here, but debt and equity could be a pressure for some time.”

Tech Giants’ Spending Boosts Sector Confidence

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

Some investors believe that at least a portion of the combined $650 billion spending on AI tools by Amazon, Alphabet, Meta, and Microsoft will go to software companies. This logic has given support to the battered software sector.

In addition to Oracle, other leading software names have also suffered major blows. Salesforce is down about 26% year-to-date, and ServiceNow is down 32%. The Tech-Software Sector ETF, which includes heavyweights like Microsoft and Palantir, is down 20% so far this year but rebounded 3% on Monday, showing investor sentiment is recovering.

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