Software stock dogs have joined market rally. There's a classic investing lesson in the rebound - CNBC

Skip Navigation Software stock dogs have joined market rally. There’s a classic investing lesson in the rebound SHARE Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via Email Markets Business Investing Tech Politics Video Watchlist Investing Club PRO Livestream Menu Key Points Cybersecurity and software stocks have had a terrible start to the year due to fears of AI disruption amid high valuations, but they surged last week. With enterprise software stocks as blue-chip as Microsoft down close to 20%, there’s a classic opportunity hunt underway among investors. But election years are volatile throughout market history and any risk-taking sending investors back into beaten-up tech names comes amid conditions where a broader stock correction could still be ahead and valuations are not necessarily cheap. In this article BUGUNCH CIBR+0.03 (+0.05%) .DJI+868.71 (+1.79%) .SPX+84.78 (+1.20%) MSFT-0.45 (-0.11%) Follow your favorite stocksCREATE FREE ACCOUNT VIDEO12:4012:40 ETF shelters from the Middle East War ETF Edge Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500. Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.” It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%. A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis. But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday. ″Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote. The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week. Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike. Global X Cybersecurity ETF RT Quote | Last NASDAQ LS, VOL From CTA | USD After Hours: Last | 04/17/26 EDT 26.15UNCH (UNCH) 26.15+0.22 (+0.85%) Close WATCHLIST+ Quote Details Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period. Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock. “Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,’” Magoon said. He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks. For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said. But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said. While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again. Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.  But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”  Sign up for our weekly newsletter that goes beyond the livestream, offering a closer look at the trends and figures shaping the ETF market. Disclaimer Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news. RELATED If a violent downturn strikes the market, new ETF strategies may be vulnerable. Here’s why Baron Capital rolls out five active ETFs, SpaceX becomes the firm’s biggest investment BlackRock rips page from hedge fund playbook, applies it to exchange-traded funds How bond market’s private credit crisis fears are playing out in fixed-income ETFs If a violent downturn strikes the market, new ETF strategies may be vulnerable. Here’s why Blair Bao watch now watch now VIDEO12:40 ETF shelters from the Middle East War Dominic Chu watch now watch now VIDEO06:05 ETF Stress Tests: How funds are showing resilience in the face of uncertainty Dominic Chu Read More 0 seconds of 12 minutes, 40 secondsVolume 90% facebooktwitterlinkedIn Link Copied Embed Copied 00:00 12:40 12:40 This site is now part of Versant. By continuing, you agree to our Terms. You also acknowledge that our updated Privacy Policy applies, including your existing data. For info on your data rights, click “Your Privacy Choices” or see “Your Rights” in our Privacy Policy. We and our partners also use tools on this site to provide the services, personalize your experience, and for analytics, marketing, and advertising. If you previously opted out of selling, sharing, or targeted advertising on this site, you will need to update your Privacy Choice. 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