Software Stocks Recover, but Goldman Sachs Says a Sustained Rally May Still Be Far Away
Application software stocks have experienced two notable rebounds this year, yet analysts at Goldman Sachs believe a long-lasting rally in the sector remains unlikely in the near term.
Despite recent gains, the investment bank expects software shares to remain largely range-bound over the coming months as investors wait for stronger fundamentals and clearer returns from artificial intelligence initiatives.
Software Stocks Have Rebounded Twice in 2026
According to a note from Goldman Sachs analyst Gabriela Borges, the median application software stock under the bank’s coverage has fallen 38% so far in 2026.
However, the sector has seen two short-term recoveries:
- A 14% rebound between February 23 and March 6
- A stronger 22% recovery from April 10 through mid-May
Although these moves provided temporary relief, Goldman believes they do not yet signal the beginning of a sustained upward trend.
Goldman Sachs Expects Software Sector to Stay Range-Bound
The bank concluded that software stocks are likely to trade within a limited range for several more months rather than enter a broad rally.
Analysts argue investors still need stronger evidence of improving business performance before significantly increasing exposure to the sector.
This cautious outlook reflects uncertainty around economic growth, enterprise spending and the pace at which artificial intelligence investments translate into profits.
AI Monetization May Not Become a Major Growth Driver Until 2027
One of the biggest questions surrounding software companies is when artificial intelligence products will begin generating meaningful financial returns.
Goldman Sachs said many firms have already indicated that monetization timelines could extend 12 to 18 months beyond current AI product launches.
As a result, broader AI-driven outperformance across the software industry may not materialize until 2027.
Investors Want Proof AI Revenue Adds New Growth
According to Goldman, simply generating AI-related revenue may not be enough to convince investors.
Markets increasingly want evidence that AI products create entirely new growth opportunities rather than merely shift spending away from existing software offerings.
The bank emphasized that investors are likely to react positively only if artificial intelligence contributes additional revenue and boosts overall company growth.
Leadership Changes and Product Improvements Show Early Progress
Goldman highlighted signs of improvement among several established software firms.
Positive developments include management changes at companies such as:
- Klaviyo
- Workday
- Adobe
The bank also pointed to early-stage product enhancements at:
- ServiceNow
- Salesforce
These developments could support longer-term recovery if execution improves.
Valuation Alone Is Not Enough to Drive a Rally
Goldman Sachs warned investors against buying software stocks solely because valuations appear cheaper after recent declines.
The bank argued that attractive valuations become meaningful only when combined with improving business fundamentals, stronger earnings outlooks or visible growth catalysts.
Without those supporting factors, lower prices may not necessarily represent compelling opportunities.
Microsoft and ServiceNow Identified as Potential Standout Opportunities
Goldman flagged Microsoft and ServiceNow as companies with more specific opportunities compared with the broader software sector.
Still, analysts noted that value-focused investors remain cautious and continue seeking clearer evidence of improving fundamentals before becoming more optimistic on software stocks.
Outlook: Investors Await Stronger Fundamentals Before Betting on a Software Rally
Recent rebounds suggest investor sentiment toward software shares may be stabilizing. However, Goldman Sachs believes sustainable gains will likely require stronger earnings, clearer AI monetization and improving operating performance.
Until then, volatility and sideways trading may continue to dominate the sector.
