Strategists at America’s biggest bank JP Morgan have recently shared a note to investors, saying the sharp fall in software stocks may be excessive and could be driven by fears that are not fully supported by current business conditions. In its note to investors, the bank said that markets are pricing in near-term disruption from artificial intelligence at levels that appear unrealistic, creating room for software shares to recover. The strategy team, led by Dubravko Lakos-Bujas at JPMorgan Chase & Co., said investors could increase exposure to higher-quality software companies that are seen as more resilient to AI-related changes. “Given the positioning flush, overly bearish outlook on AI disruption of software and solid fundamentals, we believe the balance of risks is increasingly skewed towards a rebound,” the team wrote in a note. According to the note, recent price movements in the sector have been extreme, which could allow a rotation back into software stocks in the short term.
Software shares sell off after Anthropic’s AI tool launch
Recently, software shares declined after Anthropic unveiled its latest AI tool hit by a major sell off over concerns that new AI tools could weaken traditional software-as-a-service businesses. The selloff affected companies across the sector, including those with existing AI partnerships or access to proprietary data. The decline has pushed the S&P Composite 1500 Software Index to its lowest level since the market volatility seen in April.JP Morgan pointed to companies such as Microsoft and CrowdStrike Holdings as examples of firms that could benefit from AI by improving workflows rather than being disrupted by it. The bank said long-term enterprise contracts and high switching costs could limit short-term risks for these businesses.The note added that it remains uncertain whether AI will replace traditional software companies over the long term. However, current market sentiment appears more negative than warranted at this stage. JP Morgan said recent quarterly results from software firms have been largely stable, and analysts are forecasting earnings growth of 16.8 percent for the sector in 2026.
19 software stocks are ‘AI resistant’
In a related news, JP Morgan analysts have shared a list of software stocks that it thinks are ‘AI resistant’. These are:
- Microsoft
- CrowdStrike
- Twilio
- OKTA
- ServiceNow
- Palo Alto Networks
- Zscaler
- Check Point Software
- SentinelOne
- snowflake
- data dog
- Veeva Systems
- Guidewire Software
- CoStar Group
- Tyler Technologies
- JFrog
- SailPoint
- Netskope
- Q2 Holdings
