Wall Street Left Software for Dead: 4 Stocks Institutions Are Buying Back

Key Points

• Software stocks sold off sharply early in the year on fears that AI would make subscription platforms obsolete, but institutional money is now flowing back in.
• Chaikin Analytics strategist Pete Carmasino argues that companies with sticky enterprise customers, like Salesforce and Veeva Systems, benefit from AI rather than being threatened by it.
• Cybersecurity firms CrowdStrike and Palo Alto Networks are highlighted as beneficiaries since AI adoption increases demand for protecting newly exposed corporate systems.

Software opened the year as the market's favorite casualty. The SPDR S&P Software & Services ETF NYSEARCA: XSW and the iShares Expanded Tech-Software Sector ETF BATS: IGV each dropped roughly 25% to 27% in the first quarter alone, as traders priced in a future where artificial intelligence (AI) made subscription software obsolete.

Software earnings never got that memo. Subscriber counts held or grew, revenue kept arriving, and the companies sitting on enterprise customer data started building AI into their own products—not losing to it.

Institutions noticed early. The money that fled software in the spring has been flowing back into the names with the stickiest customers, and several of those charts are already well off their lows.

That leaves a sharper question than whether software survived the AI scare. The real one is which companies are turning that scare into a tailwind, and whether the price action confirms it.

Owning the Customer Beats Fearing the Model in Enterprise Software

The AI-eats-software trade missed something basic, according to Pete Carmasino, chief market strategist at Chaikin Analytics. No large enterprise is going to tear out its customer relationship management (CRM) platform and swap in an AI imitation, however capable the model looks.

History offers a useful comparison. Railroads and the 1990s fiber-optic boom both overbuilt capacity before customers were paying for it, and names like Global Crossing and Lucent became symbols of that excess.

The AI buildout differs in one key way, per Carmasino. Model developers such as privately held Anthropic already have fast-growing paying customers. And the biggest winners of the old fiber glut weren't the builders. They were the companies riding cheap bandwidth, from Netflix NASDAQ: NFLX to YouTube parent Alphabet NASDAQ: GOOGL to Facebook, now Meta Platforms NASDAQ: META.

That changes the frame. The AI infrastructure boom may work less like a threat to entrenched software companies and more like a subsidy, handing powerful tools to whoever already owns the data.

Not every software name qualifies. The ones that do pair locked-in customers with visible AI adoption.

Institutional Accumulation Marks a Turn for Customer Relationship Software

Salesforce NYSE: CRM is the clearest example. The stock wasn't sold because the business stopped making money, in Carmasino's view. It was sold on a story, and steady accumulation is now reversing it.

The pressure traced back to a large hedge fund trade that shorted software while buying chip and data center builders. When that position unwound, the Chaikin Money Flow indicator and relative strength on Salesforce both turned higher. For Carmasino, that confirmation matters more than the bounce itself.

The business case leans on switching costs. Replacing a CRM system is the kind of project that terrifies IT departments. Salesforce has been an early champion of agentic AI, meaning software agents that take actions on a user's behalf, and it is using its own engineering bench to make the platform easier to use. Easier products tend to keep customers longer.

Analyst price targets have pointed above recent trading levels, suggesting the recovery may not be fully priced in. Proof that AI features are lifting renewals and deal sizes could push sentiment further. Watch whether money flow stays positive into the next earnings report.

AI Risk Is Turning Cybersecurity Into a Must-Have Budget Line

If AI opens new doors into corporate and personal systems, someone has to sell the locks. Carmasino sees two powerhouses filling that role. CrowdStrike NASDAQ: CRWD is the purer cybersecurity play, while Palo Alto Networks NASDAQ: PANW adds networking and broader software exposure.

The tailwind is visible. Agentic tools are being granted access to banking and financial accounts, and headlines about AI threats keep stacking up. Security has shifted from nice-to-have to have-to-have, and the systems being guarded aren't about to replace the guards.

Both stocks have pushed toward the top of their 52-week ranges, which invites a valuation debate. Carmasino doesn't dismiss price-to-earnings multiples or forward growth rates, but he lets price set the direction. Bottom fishing is hard, and he prefers owning a name already in a momentum phase with indicators confirming over waiting on a pullback that may not arrive on schedule.

He also favors holding both rather than choosing, since "should have" may be the most repeated phrase on Wall Street. The signal to watch is whether price keeps validating once AI fear headlines cool.

Pharma's Digital Filing Cabinet Offers a Quieter Software Opportunity

Veeva Systems NYSE: VEEV gets less airtime, but Carmasino sees the same customer lock-in in a different industry.

Large pharmaceutical companies use it across the cycle, from research to sales, making it something close to the filing cabinet for drug development.

That position compounds. Customers keep adding Veeva services over time, and the data involved, from clinical research to commercial pipelines, is sensitive enough that security is built in rather than bolted on.

AI raises the stakes. Modeling work that once took hours or days can now run in seconds, and research teams across biotech and pharma need a platform to manage that faster process end-to-end.

The stock has rebounded, yet Carmasino still reads the chart as sitting at a turning point with room to run.

Sticky Customers and Confirmed Momentum Drive the Software Rebound

Salesforce and Veeva Systems own the records their customers can't live without. CrowdStrike and Palo Alto Networks protect the doors AI keeps opening. Different businesses, same advantage: demand that doesn't evaporate when a new model launches.

This setup doesn't depend on calling the exact bottom or picking which AI lab wins. It does depend on customer retention holding, AI features showing up in results, and price action continuing to confirm what the indicators say.

The upside is that the AI buildout could keep handing these incumbents better tools at someone else's expense, with switching costs protecting the gains.

The risk is that several of these names have already run, and momentum stocks can give back gains quickly if earnings disappoint or the market's AI mood swings again.

Stay focused on renewals and money flow, because that's what moves software stocks from relief rally to real leadership.

Chaikin Analytics has mapped where it believes AI and supercomputing are headed next. Get Chaikin Analytics' American Atlas roadmap of the next phase of AI.