By Nate Wolf
Throughout software stocks' recent slide, investors could comfort themselves by zooming out and looking at the sector's long-term returns. Not anymore.
Over the last decade, the iShares Expanded Tech-Software Sector exchange-traded fund has delivered the same returns as the S&P 500 -- 15.7% on an annualized basis.
A brutal 2026 has finally caught up to software stocks, reversing years of outperformance. The software ETF -- better known as the IGV -- is down almost 16% this year, while the S&P 500 has climbed 10%.
While the artificial-intelligence arms race has supported chip makers, energy producers, and even HVAC installers, it has also spurred fears legacy software products will become obsolete.
Some household names have been hit especially hard. Salesforce shares are down 43% in 2026 and looked set to extend their longest-ever losing streak Monday. Even Microsoft, which has a massive AI cloud-computing business and a stake in OpenAI, has tumbled 23% this year.
Speaking of OpenAI, the AI lab's release of ChatGPT on Nov. 30, 2022, was a turning point for software stocks.
In the 10 years before ChatGPT's earth-shattering launch, the IGV returned 335% in total, or around 16% a year. The iShares Core S&P 500 ETF returned 238%, or around 13% a year. The broader large-cap index has caught up in the 3 1/2 years since.
Conventional wisdom before ChatGPT was that you looked to software -- with its wide margins, rapid growth, and expensive valuations -- for exciting, if volatile, investment opportunities. Today, the volatility is still there, but the excitement is long gone.
"The AI story remains a dominant theme for both markets and many economies around the world," investment management firm Invesco wrote in its midyear outlook last week. "We prefer exposure to semiconductors and hardware players and are wary of software companies today."
That wariness comes through in software's shrinking multiples. The IGV is expected to deliver earnings of $3.52 a share in 2026, up from $2.78 a share last year, per FactSet. Software earnings last quarter mostly were fine.
But the fund now trades at 23.6 times estimated 12-month earnings, down from 26.5 at the start of the year and 28.6 when ChatGPT first launched. The question now is how much lower software can go.
Write to Nate Wolf at nate.wolf@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 22, 2026 14:12 ET (18:12 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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