Despite the Nasdaq Composite reaching record highs in April 2026, software stocks have struggled to keep pace, with a major software-focused exchange-traded fund declining nearly 17% year-to-date. This divergence highlights growing investor concerns about artificial intelligence disrupting traditional software business models, even as some companies report better-than-expected earnings.
The Nasdaq Composite index rose 6.89% from the start of the year through April 24, 2026, reaching an all-time high, according to trading data cited in South Korean financial reporting. In contrast, the iShares Expanded Tech-Software Sector ETF (IGV), which tracks major software companies, fell 16.98% over the same period. This stark performance gap underscores a widening divide between broader technology gains and specific challenges facing the software sector.
Analysts point to rising fears that generative AI tools could replace certain software functions, contributing to a prolonged downturn in software revenue growth. Stephen Sloinski, a researcher at BNP Paribas, noted that software sales growth began declining as early as 2021 and may not recover to Wall Street expectations without meaningful AI-related revenue streams. “Until then, the perception of these companies as AI beneficiaries will remain limited,” he said in remarks reported by Korean media.
Despite these headwinds, several prominent software firms delivered stronger-than-anticipated quarterly results in late April 2026. IBM reported first-quarter revenue of $15.92 billion and adjusted earnings per share of $1.91, surpassing analyst forecasts of $15.62 billion in revenue and $1.81 EPS. ServiceNow also announced quarterly revenue of $3.77 billion, in line with consensus estimates, though its stock price declined following the release.
The market reaction illustrates a growing disconnect between fundamentals and investor sentiment. Even when software companies exceed earnings expectations, their shares have faced downward pressure as markets focus on long-term structural shifts driven by AI adoption. This dynamic has led some investors to reallocate capital toward AI infrastructure plays, particularly semiconductor companies enabling AI model training and deployment.
In contrast to struggling software stocks, AI-related exchange-traded funds have attracted significant inflows. The TIGER US Philadelphia AI Semiconductor Nasdaq ETF, which holds companies like NVIDIA and other chipmakers critical to AI development, recorded over 2 trillion Korean won in net personal investor purchases within six months of its launch, reflecting strong demand for AI-exposed equities.
These trends suggest a broader market rotation underway, where enthusiasm for AI innovation is benefiting hardware and cloud infrastructure providers while pressuring traditional software vendors to demonstrate tangible AI integration. Companies that fail to show clear pathways to AI-driven growth may continue to face valuation pressures, regardless of short-term earnings performance.
Market participants will be watching upcoming earnings reports from major software and AI infrastructure firms in May and June 2026 for further clues about how the sector is adapting to these shifts. No official regulatory filings or economic data releases are currently scheduled that would directly impact this trend.
For ongoing coverage of technology market movements and AI investment trends, readers are encouraged to follow updates from major financial exchanges and semiconductor industry reports. Share your thoughts on how AI is reshaping software valuations in the comments below and consider sharing this article with others interested in tech market dynamics.