JPMorgan believes that software stocks, which have slumped in 2026 because of investor fears that artificial intelligence will undermine their business, have now fallen too far, creating an opportunity to buy higher-quality names at attractive valuations. The bank said that software has suffered a historic and broad crash that’s reached into every corner of the industry, suffering the largest non-recessionary 12-month drawdown in more than 30 years. The sector has lost $2 trillion of market capitalization from its peak, reducing its weight in the S & P 500 to 8.4% from 12%, a team of JPMorgan strategists led by Dubravko Lakos-Bujas added. Software stocks have plunged recently as investors have fretted that new artificial intelligence, large-language models could disrupt existing technologies. At one point last week, the iShares Expanded Tech-Software Sector ETF (IGV) had plunged more than 20% in three weeks and, even after recovery Friday and Monday, remains 28% below its September all-time high. IGV 6M mountain iShares Expanded Tech-Software Sector ETF in past six months. But JPMorgan believes the market has gone too far and is now pricing in the worst-case, AI disruption scenarios that are “unlikely” to materialize, certainly in the next three to six months. This perceived risk of disruption has indiscriminately punished both quality as well as speculative growth software names alike, Lakos-Bujas said. In terms of tactical trading, the strategist noted that short interest levels in software are at record levels, while hedge funds are currently favoring AI semiconductors over software, a setup that the bank says skews the balance of risks toward an imminent rebound. “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, especially in higher quality Software segments (i.e., Cyber). Therefore, while further downside risk cannot be ruled out, we recommend investors add exposure to a basket of higher quality and AI-resilient Software companies,” the bank wrote. In the same note to clients, JPMorgan shared a basket of software stocks it views as the most resilient to artificial intelligence threats, including the overweight-rated names below: The largest recommended stock was Microsoft — little changed over the past 12 months but down 14% in 2026 and lower by 21% in the past six months. Across Wall Street, analysts remained overwhelmingly bullish on Microsoft following its latest earnings report on Wednesday, Jan. 28. Of the 60 analysts covering the Windows and XBox parent, 56 rate it either a strong buy or buy, while four rate it a hold. Cloud data storage platform Snowflake was also touted by JPMorgan as a rebound candidate. Bozeman, Montana-based Snowflake has plunged 20% in the past month and more than 34% in the past three. Wall Street as a community remains similarly optimistic on Snowflake, with 43 analysts assigning the stock a strong buy or buy rating, while seven it a hold. Other stocks in JPMorgan’s rebound basket include CrowdStrike , Zscaler and ServiceNow .
JPMorgan says the historic software selloff has gone far enough. 10 stocks to buy on sale
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