Software stocks staged a strong rebound on Wednesday after brokerage Guggenheim upgraded three major companies, arguing that concerns over artificial intelligence disrupting the software industry have become overly pessimistic.
The rally lifted several technology names, with Salesforce gaining 4.9%, ServiceNow rising 4.6% and Check Point Software Technologies advancing 2.7%. The iShares Expanded Tech-Software Sector ETF, a widely tracked gauge of software companies, climbed 3.2%.
The positive sentiment spilled over to other IT and consulting firms. Accenture jumped 7% to $133.17, IBM rose 4% to $292.83, while Cognizant gained 7.14%.
The gains in software stocks helped offset weakness in semiconductor companies, which had weighed on the broader technology sector after an extended rally.
The move followed Guggenheim’s decision to upgrade Salesforce, ServiceNow and Check Point from “Neutral” to “Buy”, with the brokerage arguing that the market has priced in an excessively bearish outlook for software companies in the age of artificial intelligence.
“Valuations imply many software companies will decline into perpetuity because of AI,” Guggenheim analyst John DiFucci wrote in a research note, reported Bloomberg. “We don’t believe that to be true.”
While acknowledging that AI-native companies such as OpenAI and Anthropic are increasing competitive pressure, DiFucci said the market’s worst-case assumptions were unrealistic.
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Software companies have faced significant selling pressure this year as investors questioned whether generative AI and autonomous AI agents could disrupt traditional enterprise software providers.
The sector has sharply underperformed the broader technology market. The iShares Expanded Tech-Software Sector ETF has declined about 12% this year, while the Nasdaq 100 Index has gained nearly 19%, driven largely by a powerful rally in semiconductor stocks.
Among the companies upgraded, Salesforce has been one of the biggest laggards, falling more than 40% this year and recording a 14-session losing streak last month its longest on record. Check Point has dropped nearly 30% over the same period.
Guggenheim assigned Salesforce a price target of $228, implying potential upside of more than 45% from Tuesday’s closing price.
The brokerage also expressed confidence in ServiceNow, saying the correction has created “an attractive opportunity” to own a profitable business that is expected to continue delivering double-digit organic growth in the coming years.
While AI presents meaningful risks, Guggenheim said it does not expect the technology to become “ServiceNow’s death knell.” It set a price target of $125 on the stock, implying upside of about 26%.
For cybersecurity company Check Point, Guggenheim said its valuation already reflects much of the negative outlook, while highlighting the company’s strong free cash flow generation. The brokerage assigned a price target of $188, representing potential upside of more than 40% from Tuesday’s close.
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