Why software stocks, 2026’s market dogs, have joined the rally

Cybersecurity and enterprise software stocks have been the market dogs since the beginning of 2026; The narrative is dominated by the fear that AI will destroy large numbers of companies in the corporate space. But last week they ended a brutal losing streak and joined a broader market rally that saw all the losses from the US-Iran war clawed back. Dow Jones Industrial Average And S&P 500.

Amplify ETF CEO Christian Magoon said on this week’s “ETF Edge” that cybersecurity has “fallen victim to some of the headlines around artificial intelligence.”

These weren’t just niche cybersecurity names. To take Microsoftfor example, it recently fell nearly 20% year over year. Its shares rose 13% last week.

Magoon said a big reason for the hit in software stocks is that investors are moving within tech into AI infrastructure, semiconductors and some other names in large-cap tech, and since cybersecurity stocks and ETFs are heavily geared toward software companies, they’ve lagged even as those businesses continue to grow fundamentally.

But Wall Street is now even more bullish with stocks at lower levels. Jefferies technology analyst Brent Thill said last week that the worst may be over for software stocks. “I think the concept that software is dead and then Anthropic and OpenAI are going to kill the entire industry is hugely exaggerated,” he said on CNBC’s “Squawk Box” on Wednesday.

“Big Short investor Michael Burry wrote in a Substack post on Wednesday that he is bullish on software stocks following the recent sell-off. “Software stocks remain interesting due to extreme declines that accelerated last week, driven by a reflexive positive feedback loop between falling software stocks and changes in the bank debt market,” he wrote.

Global X Cybersecurity ETF (BUG), is down nearly 12% since the beginning of the year. top holdings to contain Palo Alto Networks, Fortinet, Akamai Technologies And CrowdStrike. However, BUG increased by 12% last week. First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year but is up 9% in the past week.

Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks, which helped the stock rise 7%; It’s currently down roughly 6% year-over-year. Its peers have seen similar moves, including CrowdStrike.

Magoon said that expectations in the field of cybersecurity may have become too high and that solid results were not enough to move stocks higher due to the crowding effect among investors. But for the sector, the decline and subsequent rise in 2026 is also a reminder that opportunities could be up for grabs if stocks fall sharply over a short period of time.

“Once you get over 10% in some of these subsectors, you start to see naysayers start to say, ‘well, maybe I’ll take a look at this,’” Magoon said.

Magoon said artificial intelligence adds both opportunity and uncertainty to the cybersecurity equation, increasing demand but also bringing new competition. But he added: “I think it’s good to buy the dip in an AI-driven world” because risks to companies could actually lead to more mergers and acquisitions in cyber names that benefit stocks.

For now, investors can look for opportunities on the margins rather than rushing into older tech names. “I think investors still aren’t going to put enough weight into software,” Thill said.

But Magoon advises investors to heed the reminder to at least keep an eye on market niches during significant downturns in subsectors. “The best performers are often the least bought, and the ones that do best over the next 12 months are against late-game pileups,” he said.

While this was a mentality that worked against recent investors investing in cybersecurity and enterprise software in mid-2025, when the tone started to set in, it’s starting to work again, at least for now.

Meanwhile, this year’s biggest winner is also a good example of the comeback in extended trading. Citing Bank of America data, Magoon said corporate energy ownership last year was at its lowest level in recent years. “Reverse sentiment can be a great indicator,” he said.

But he warned that selectively buying stocks that have fallen risks a bigger decline in the market yet to come in 2026. This is because midterm election years have historically been marked by large declines. “If you think it’s bad right now, it could be a lot worse,” Magoon said. However, he added that there is a silver lining in these data for the patient investor. The market posted very strong returns over the 12-month period following the end of the midterm election declines. So for investors who have a longer-term time horizon and don’t need short-term liquidity, “hang in there,” Magoon said.

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