JPMorgan strategist Samik Chatterjee noted that the broader software group and the IGV index have rallied significantly since the end of June, challenging the narrative that artificial intelligence players like Anthropic and OpenAI would destroy software-as-a-service business models. The sector is up 21% relative to the broader S&P 500, which rose 4% over the same period.
The recovery follows a stretch where the "SaaSpocalypse" narrative hammered many software players. Chatterjee attributed the renewed strength partly to a valuation multiple rerating across infrastructure and application software companies. He stated that renewed belief in software stocks could be sustained into year-end as investors digest third-quarter earnings reports.
Top performers in the recent rally include Paycom, DocuSign, Workday, Salesforce, Cloudflare, Twilio, and Microsoft. Chatterjee expects infrastructure software companies to lead the way into third-quarter earnings due to AI-led tailwinds driving strong results on both top-line revenue and earnings. He noted that gross margins for these companies may be in line with expectations.
Application software companies are also expected to participate in the positive share price momentum through year-end. Chatterjee cited raises to full-year guides and building momentum in AI monetization as key drivers. He described this AI revenue as incremental to core businesses, which are experiencing growth that ranges from modestly decelerating to stable across his coverage universe.