Death of software 'greatly overstated' as sector flips the script on chip stocks: Chart of the Day

Software stocks, once left in the dust, have bounced back in recent months as high-flying chip stocks take a back seat.

"One of the things that was greatly overstated earlier this year was the death of software," Brian Mulberry, Zacks Investment Management chief market strategist, told Yahoo Finance on Tuesday.

"In order to engage with these AI tools … you need software to customize those tools for your business, " he said.

The iShares Expanded Tech-Software Sector ETF ( IGV ) is up 15% over the past three months and more than 40% higher from its April lows. Among individual movers, Microsoft ( MSFT ) and Palantir ( PLTR ) are both up 30%, while Salesforce ( CRM ) has risen more than 50% since mid-June.

In comparison, the iShares Semiconductor ETF ( SOXX ) is down 17% over the three-month period, according to Yahoo Finance's AlphaSpace chart.

Cybersecurity is the standout in software, driven by growing use of AI agents and the race to protect intellectual property. Outperformers within the space include Palo Alto Networks ( PANW ) and CrowdStrike ( CRWD ), up roughly 30% and 40%, respectively.

"That means that software is still very viable in this moment, and it's going to be a necessary component of what your AI stack is going to look like," Mulberry said.

While AI chip stocks have dominated year-to-date gains, the high-momentum trade has lagged over the past few months.

Micron ( MU ) is down more than 20% from its all-time high in mid-June, while Sandisk ( SNDK ) is off more than 30% from its summer record highs.

Still, strategists point to chipmakers' demand outstripping supply, with strong outlooks into 2027.

"We see the AI-driven selloff as an opportunity rather than a warning — quality names get sold with everything else," said Hendi Susanto, portfolio manager and research analyst at Gabelli Funds. "That's where the opportunity is."

Susanto favors AI infrastructure plays with attractive valuations and strong outlooks, such as Arista Networks ( ANET ), AMD ( AMD ), Nvidia ( NVDA ), Dell ( DELL ), and Hewlett Packard Enterprise ( HPE ).

The AI boom shows no signs of slowing down , even as industry leaders like Anthropic CEO Dario Amodei call for "pace the frontier," a sentiment echoed by OpenAI ( OPAI.PVT ) CEO Sam Altman and Tesla ( TSLA ) CEO Elon Musk.

Yet, for software leaders, stepping back isn't an option.

"Well, the attackers aren't slowing down," Okta ( OKTA ) co-founder and CEO Todd McKinnon told Yahoo Finance this week. "So I think it's really important that we invest in innovation to defend ourselves."

Ines Ferre is a senior business reporter for Yahoo Finance.