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Tuesday, April 21, 2026
Software Reboot: The Comeback Playbook
By Century Financial in 'Investment Insights'
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Top Picks - US Software
ETF SNAPSHOT
STOCKS SNAPSHOT
* Last Price represents the closing price as of 13 April 2026
* Recommendation Consensus is out of 5
* Date: 14 April 2026
* Source: Bloomberg
The year 2026 started off on an optimistic note, only to be plunged into a flurry of volatility marked by geopolitical tensions and inflation worries. Amid all this uncertainty, Wall Street is flashing an opportunity that is hard to ignore. It lies in America’s software stocks — a sector that took a beating leading up to 10th April 2026, amid fears that artificial intelligence would erode software demand. However, the selloff was driven by sentiment rather than fundamentals. The narrative is now changing with software stocks on the cusp of a comeback. The disconnect between strong fundamentals and low valuations is hard to miss.
A Glaring Gap Between Valuation and Fundamentals
Valuation Metrics — Current vs 2-Year Average
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S&P 500 Software Index — Income Statement Summary
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Date: 14 April 2026 · Source: Bloomberg
Valuations across the software space have meaningfully reset. The index is currently trading at 29.1x LTM P/E, down from a 2-year average of 40.0x, alongside similar compression across other metrics — P/BV at 7.5x vs 10.9x, P/CF at 19.3x vs 27.8x, and P/S at 8.9x vs 11.9x. Taken together, this suggests a clear de-rating over the past two years. While fundamentals across many companies have remained resilient, multiples have adjusted lower, bringing the sector to levels that now screen undervalued relative to its recent history.
iShares Expanded Tech-Software Sector ETF (IGV)
The iShares Expanded Tech-Software Sector ETF (IGV) is one of the best pure-play instruments for the Software industry within the tech sector. Around 60% of the holdings account for Application software, while 36.5% of the holdings account for Systems software, meaning there is essentially no semiconductor or hardware exposure. This is clearly evident in the top holdings, with stocks like Oracle, Microsoft, Palantir, and Salesforce each carrying a roughly 7% to 9% weight in the ETF, totalling about 32.76% of the ETF. Top cybersecurity names such as Palo Alto Networks and CrowdStrike, along with cloud infrastructure players such as ServiceNow, are also among the top 10 holdings.
From its peak at $117.79 in September 2025, IGV has fallen by around 33.19% to $78.70, while the SPX Index has gained around 3% for the same period, highlighting the significant fall within the software sector. The narrative shifted with a big jump in the IGV on Monday, 13th April. After briefly falling below a support zone marked by the lows of 2024’s January, May, and August, 2025’s April, and 2026’s February and March, the price has successfully completed a bear trap and recaptured the support. This kind of reversal around such zones could be considered a strong bullish signal as per technical analysis. That matters because it could mean a broader tech rally is at play, not just chip stocks leading the gains. IGV first breached the $80 level back in 2021, giving an opportunity to enter at such levels 5 years later.
IGV Price Chart Support zone recaptured after bear trap
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Date: 14 April 2026 · Source: TradingView
On top of that, the chart shown below shows that the trailing 12-month Price-to-Sales ratio for the S&P North American Expanded Technology Software Index (which IGV seeks to track) currently sits at around 6.92, indicating much better valuations compared to the 5-year high of around 12.93, and just slightly above the 2022 low of around 6.24.
LTM Price-to-Sales Ratio — S&P North American Expanded Tech Software Index
5-year view · Current: 6.92x · 5-yr High: 12.93x · 2022 Low: 6.24x · Source: Bloomberg
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Date: 14 April 2026 · Source: Bloomberg
Individual Stock Analysis
One of the top picks for the software sector's turnaround story is Microsoft (MSFT). Microsoft offers a massive portfolio of SaaS products, with Microsoft 365 being the primary example. The company is capacity-constrained in its Azure front, which might provide a solid runway through calendar 2026 to top consensus revenue as greater AI demand is recognised. Microsoft's early investments in AI are translating into strong cloud growth, reinforcing its position as a leading infrastructure provider for AI inference over the long term. This momentum is driven by strategic partnerships with OpenAI and significant capital deployment to expand data centre capacity. AI-related revenue is projected to reach around $42 billion in calendar 2026, exceeding consensus estimates by roughly $4 billion. Importantly, Microsoft's strong cash flows from its Windows and Microsoft 365 businesses provide the financial flexibility needed to sustain aggressive infrastructure expansion and maintain its competitive edge.
Salesforce is a cloud-based software giant that provides end-to-end enterprise management solutions, often making switching costs high for users. To tap into the AI space, companies in this sector are including their own AI agents — for instance, Salesforce provides Agentforce, a suite of customisable AI agents and tools that brings together AI, data, and applications on a single unified platform. This allows businesses of any size or industry to create more personalised customer experiences across all touchpoints, while easily scaling their data and automation as they grow. Salesforce holds a strong position in cloud-based sales and customer service software, with over 40% market share, giving it an advantage as businesses increasingly adopt AI-powered agents. Products like Agentforce and Data 360 are seeing growing adoption, and this momentum could accelerate further with the addition of Informatica. Going forward, Salesforce is expected to shift its focus back to driving revenue growth, led by its data and AI offerings — positioning the company for a return to double-digit revenue growth as economic and geopolitical conditions stabilise and businesses increase their IT spending.
ServiceNow has established itself as a core platform in enterprise software, helping organizations automate workflows across functions — in many ways, it operates as the backbone for how modern businesses run day to day. The fundamentals remain solid. In Q4 2025, the company delivered $3.57 billion in revenue, marking a 20.5% YoY increase. Roughly 97% of this came from subscriptions — a mix that provides strong visibility and consistent earnings. One of the more reassuring elements here is the $12.85 billion in remaining performance obligations, up 25% YOY — it gives a clear sense of how much revenue is already effectively in the bag. On the growth front, AI is gradually shifting from a story everyone talks about to something customers are actually using, with momentum likely to pick up in the second half of 2026. Management seems to be approaching this pragmatically — rather than building everything in-house, they’re selectively bringing in capabilities through acquisitions like Moveworks and Pyramid Analytics to strengthen what they already have. There’s also a quiet signal of confidence from the balance sheet, with the board approving a fresh $5 billion buyback. When you put that alongside where the stock is currently trading — towards the lower end of its historical multiples on both EV/Sales and EV/FCF — it begins to look like a more reasonable entry point for a business that still sits firmly in the top tier of large-cap enterprise software.
Cybersecurity remains one of the strongest segments in the SaaS space, with names like CrowdStrike leading the pack. The company is poised to hold up better than other software companies in the wider selloff, as security tools rely on real-time system log data that AI models cannot learn from. CrowdStrike could see incremental spending on vulnerability offerings following its inclusion in Project Glasswing, a cybersecurity initiative centred on Anthropic’s unreleased frontier AI model — making it well-positioned to integrate that intelligence into its existing product suites rather than be disrupted by it. Additionally, stocks in the defence and cybersecurity space have seen a significant jump since the start of the US–Israel military campaign against Iran. Many voices, including JPMorgan’s Jamie Dimon, have warned of an escalating cyberattack threat in the US, boding well for demand for Crowd- Strike’s services. Adding to that, the company’s latest earnings reported an ending ARR of $5.25 billion, up 24% YoY, alongside a 47% surge in net new ARR to $331 million. CrowdStrike’s valuation is often closely tied to the strength of its subscription revenue, suggesting robust performance ahead.
Datadog sits at the center of how companies keep their apps, infrastructure, and data running smoothly — especially in increasingly complex cloud setups. The growth profile still looks healthy, but what matters more is that it’s backed by cash. Revenue is holding in that high-20s growth range, and free cash flow came in at $915 million in 2025, which tells you the model is scaling in a more sustainable way. There’s also better line of sight on what’s ahead — remaining performance obligations are up 52% to $3.46 billion, so a larger chunk of revenue for the next couple of years is already contracted. At the top end, enterprise demand isn’t fading either. Customers spending over $1 million annually rose 31% to 603, which points to deeper usage rather than hesitation. At the same time, the stock has pulled back meaningfully — still more than 40% below its $201 peak — which starts to make the setup a bit more interesting from an entry perspective. Where it gets more compelling is the AI angle. As companies deploy more AI, they’re also creating more data and more points of failure — which naturally increases the need for monitoring. That dynamic plays directly into Datadog’s strengths. You can already see early traction here: over 1,000 customers are using its AI-focused tools, and usage has ramped quickly, with AI-related spans up roughly 10x in six months.
Palantir is a data analytics and AI platform that has become deeply embedded across U.S. government agencies and large enterprises. The company continues to see strong momentum, with Q4 revenue rising 70% YoY to $1.41B, ahead of expectations, and full-year 2025 revenue reaching $4.48B (+56%), marking its tenth consecutive quarter of accelerating growth. Profitability is also holding up well, with adjusted free cash flow of $791M (56% margin) and a debt-free balance sheet supported by $7.2B in cash. On the demand side, visibility remains strong, backed by large, long-term contracts, including a U.S. Army framework worth up to $10B, as well as increasing adoption of its AI platforms within the defence ecosystem. Looking ahead, management is guiding to around $7.2B in FY2026 revenue (~61% growth), which comes in well ahead of earlier expectations and reflects growing traction in AI-led deployments.
Snowflake is a leading cloud data platform, increasingly positioned at the centre of enterprise data and AI workflows. The company delivered a strong quarter, with Q4 product revenue up ~30% YoY, ahead of expectations, alongside pro forma operating margins of ~10.8% (vs ~7.5% consensus) and free cash flow of ~$782M, also above estimates. Demand continues to hold up well, alongside a steady flow of large deal wins, including a $400M+ contract — the biggest the company has signed so far. Customer growth also remains solid, with around 740 net additions during the quarter. Looking ahead, Snowflake is guiding to ~26.6% product revenue growth for FY27 (~25.6% organic), which is ahead of expectations and increasingly supported by rising demand for AI-driven workloads. With sustained cloud migration tailwinds, deepening enterprise adoption, and growing AI monetisation, Snowflake continues to offer a high-quality growth profile with improving visibility and scale.
AppLovin operates an AI-powered advertising platform that connects mobile application developers with advertisers seeking to reach targeted audiences at scale. The company controls both sides of the marketplace — managing advertiser demand through its Axon engine and publisher ad supply through its MAX platform — creating a data flywheel that strengthens with every transaction. This dual ownership is difficult to replicate and gives AppLovin a structural advantage over single-sided competitors. Its MAX platform holds an estimated 60% share of the global mobile ad mediation market, underpinning a sticky and recurring revenue base. The business generates adjusted EBITDA margins exceeding 80%, a level more comparable to enterprise software than traditional advertising technology. In its most recent quarter, AppLovin reported Q4 2025 revenue of $1.66 billion, up 66% year over year, with full-year 2025 revenue reaching $5.48 billion, a 70% increase from 2024. For Q1 2026, the company has guided revenue of $1.745 to $1.775 billion with an anticipated adjusted EBITDA margin of 84%, signalling continued momentum.
* Last Price represents the closing price as of 13 April 2026
* Recommendation Consensus is out of 5
* Date: 14 April 2026
* Source: Bloomberg
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