Strong earnings from software and cybersecurity companies pushed the S&P 500 and Nasdaq to records, extending a rally that has lifted some tech stocks more than 70% from their April lows.
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Tech earnings lift S&P 500, Nasdaq to records as AI winners emerge
Strong earnings from software and cybersecurity companies pushed the S&P 500 and Nasdaq to records, extending a rally that has lifted some tech stocks more than 70% from their April lows.
The S&P 500 and Nasdaq Composite hit record highs as a wave of tech earnings topped expectations, extending a rally that has lifted software and cybersecurity stocks sharply from their April lows.
"The market is finally distinguishing between companies that can monetize AI and those that can't," said Dan Ives, managing director at Wedbush Securities. "This earnings season has validated that thesis."
The iShares Expanded Tech-Software ETF surged 25% from its April 10 low but remains down 11% for the year, while the tech-heavy Nasdaq 100 has gained 19% in 2026. Cybersecurity names have been among the biggest beneficiaries, with Palo Alto Networks gaining 60% since the start of April and CrowdStrike jumping 72% over the same period. About 87% of software companies beat earnings and revenue expectations this season, up from 71% in the prior period, according to data compiled by Bloomberg.
The divergence raises a critical question for investors: after a 60% to 70% run in some of the sector's biggest names, is it too late to buy? The data suggests the AI-driven selloff in software stocks earlier this year may have been overdone, but the market is now demanding proof of AI monetization — a bar not every company can clear.
Salesforce illustrates the market's new selectivity. The stock is up 10% from a three-year low hit on April 10 but still down 31% in 2026, trading at 13 times estimated earnings — well below its 10-year average of 45. Bank of America analyst Tal Liani reinstated coverage with an underperform rating, citing "structurally lower growth" and competitive risks from AI. Yet 47 of 62 analysts tracked by Bloomberg maintain buy ratings, with an average price target of $253 implying 37% upside. "The business has a stickiness and staple-like nature that people have underestimated," said Brian Kersmanc, portfolio manager at GQG Partners, which owns Salesforce shares.
The cybersecurity subsector faced its own test after ZScaler's earnings disappointed. The company guided for revenue growth of 16% to 17% in the coming fiscal year, below the 19.5% consensus, and lowered its free cash flow forecast due to increased AI-related capital expenditure. Shares plunged 30%. The selloff spilled into peers, with Palo Alto Networks and CrowdStrike each falling about 3% to 4% in sympathy. Wedbush's Ives argued the weakness was company-specific, raising his price targets on Palo Alto Networks to $300 and CrowdStrike to $700. "These are company-specific execution issues and not an indicator of broader sector issues," he wrote.
The U.S. 10-year Treasury yield edged lower, while the dollar index held steady, providing a supportive backdrop for equities. Stephen Bersey, head of technology research at HSBC, said the pessimism around software is misplaced. "AI represents one of the most significant monetization opportunities for software that I've seen in several decades," he said. "It is ironic to me that as we sit in front of a golden age of software, powered by AI, that the market is the most pessimistic about the sector as it has ever been."
This article is for informational purposes only and does not constitute investment advice.
