Why It Matters
A sharp rally in software stocks during May has provided relief to investors who had grown increasingly nervous about artificial intelligence threatening the traditional software business model. The turnaround suggests that at least some companies in the sector are finding ways to adapt to — and even capitalize on — the AI-driven shifts reshaping enterprise technology.
What Happened
The iShares Expanded Tech-Software ETF climbed 8% in the final week of May and finished the month up 21% — its strongest monthly gain since October 2001, when a brief bounce occurred during the collapse of the dot-com bubble. The current rally was fueled largely by stronger-than-expected earnings from data platform company Snowflake and identity security firm Okta, both of which indicated that demand for their services is growing despite the rapid rise of AI-powered software tools.
The gains come after a difficult stretch for the sector. Software names have faced mounting pressure over the past year as so-called “vibe coding” tools — products from companies like Anthropic and OpenAI that allow users to build applications in minutes — raised doubts about the long-term viability of traditional software vendors, a concern that analysts dubbed the “SaaSpocalypse.”
By the Numbers
- 21% — Monthly gain for the iShares software ETF in May 2026, the best since October 2001
- 3.8% — The ETF’s year-to-date decline despite the May rally, still well behind the Nasdaq’s 18% gain in 2026
- ~50% — Snowflake’s gain over four trading sessions following its earnings release, including a record single-day performance
- $6 billion — Value of a cloud and chip partnership Snowflake announced with Amazon alongside raised guidance
- 30% — Okta’s single-day gain on Friday, a record for the company
Key Movers
Snowflake was the headline performer of the week. The company announced a major cloud and chip agreement with Amazon, raised its financial outlook, and drew praise from analysts at Argus Research, who characterized it as a “picks and shovels” play on generative AI. The firm lifted its price target on Snowflake to $300 from $250. Snowflake CEO Sridhar Ramaswamy noted that customers are deploying and scaling AI workloads at an accelerating pace. The stock closed Friday at $255.55, now up 17% for the year.
Okta posted a record one-day gain of 30% after the identity security company reported results that topped expectations. CEO Todd McKinnon said the shift toward agentic AI — systems in which AI models act autonomously on behalf of users — is pushing organizations to invest heavily in identity infrastructure. “Every organization is going to build and deploy agents,” McKinnon said. “It’s fundamental infrastructure that’s going to be required over the next few years.”
Other software names participated in the rally as well. Atlassian added 26% for the week, ServiceNow surged more than 20%, and Shopify, Workday, and Asana each gained at least 14%. Among larger technology companies with cloud operations, Oracle jumped 16% and Microsoft rose nearly 8%, though Microsoft remains down roughly 7% for 2026 — the weakest year-to-date performance among large-cap technology companies. For more on how AI hardware is driving related market moves, see the record rally in Dell shares tied to AI server demand.
Zoom Out
The May software rebound fits into a broader pattern of market rotation as investors reassess which technology segments stand to benefit from AI rather than be displaced by it. Companies that manage, unify, and secure data at scale appear to be gaining favor, as enterprises increasingly need robust data infrastructure to deploy AI tools effectively. The performance gap between software names and the broader Nasdaq remains wide, however, signaling that the sector has not fully recovered from its AI-driven repricing.
What’s Next
Investors will be watching whether the May momentum carries into the summer as additional enterprise software companies report quarterly results. The durability of the rally likely hinges on whether more firms can demonstrate that AI is expanding their addressable markets rather than cannibalizing existing revenue streams. Guidance updates and partnership announcements with major cloud providers will be closely scrutinized in the months ahead.