Artificial intelligence will change the software industry, but several players in the space will be able to evolve with the shifting times and investors should get in now, says one Guggenheim analyst.
The iShares Expanded Tech-Software Sector ETF has fallen 20% from its record closing high of $117.79 on Sept. 22, 2025 as investors worry that evolving AI technology will eventually make critical software functions obsolete.
Guggenheim analyst John DiFucci says now is the time for Wall Street to take advantage of that deep software selloff despite those ongoing AI fears. He upgraded shares of ServiceNow, Salesforce, and Check Point Software Technologies on Wednesday. Those stocks climbed 6.6%, 4.2%, and 2.2%, respectively.
Software stocks are trading at historically low valuations amid this broader selloff. ServiceNow is trading at 22.9 times earnings expected over the next 12-months, which is well below its 5-year average of 55.4 times. Salesforce trades at 11.1 times forward earnings compared with its 5-year average of 29.7 times.
“We believe traditional software companies will at least persist (if not continue to grow at reasonable rates in many instances), but they’re trading as if they will not, making for one of the best opportunities for patient investors in our careers,” DiFucci wrote.
DiFucci recognizes that the tech landscape is changing and software firms have to evolve with it. That evolution, along with the longstanding relationships these companies have with their customers, are some of the main reasons why he doesn’t see enterprise software being replaced by AI down the line.
“We view AI as a technology paradigm shift, and the leaders of a new paradigm are typically not the leaders of the last one. At the same time, there is significant staying power in enterprise Software. If a company is using it to help run its business, it will continue to use it—‘if it ain’t broke, don’t fix it,’” he wrote.
On top of having confidence that companies aren’t likely to get rid of their existing enterprise software relationships that easily, DiFucci believes software firm’s financials will improve in the near term.
Companies spent big on software in 2020 and 2021 when the Covid-19 pandemic was at its peak. This led to a slowdown in new spending from 2022 to 2024. DiFucci said he’s starting to see signs that new annual recurring revenue growth is accelerating again, which he believes is a positive sign for the stocks that investors haven’t recognized yet.
“If growth for a decent number of Software companies starts to stabilize and then perhaps accelerate into the end of 2026 and 2027, then the AI death knell will not be as loud, even if it doesn’t go away,” he wrote. “We expect names currently trading as if they’ll decline into perpetuity to start to trade as if they’ll at least be stagnant, if not grow modestly into perpetuity.”
