Why Software ETFs Could Surge 20% Soon: Insider Moves & AI Upside
You missed the software dip; now the rebound is staring you in the face.
- ETF price support in the low‑80s suggests a strong buying floor.
- Microsoft board member’s $2 million purchase signals confidence.
- AI hype could compress forward P/E multiples, but also creates new revenue streams.
- Cybersecurity firms remain insulated from generic AI threats.
- Historical dip‑buying patterns hint at a 15‑20% upside in the next 6‑12 months.
Why the iShares Expanded Tech-Software ETF Is Poised for a Bounce
The iShares Expanded Tech-Software Sector ETF (ticker: XLK) slid 31% from its September peak, now hovering near $79‑$81. That range isn’t random; it mirrors previous low‑price support zones observed after the April 2025 sell‑off and during the 2023‑24 correction. When an asset repeatedly finds a floor, market participants interpret it as a signal that valuation has become attractive for long‑term fundamentals.
Technical traders point to the “price‑to‑earnings” (P/E) multiple—a ratio comparing a company’s share price to its earnings per share—as a key gauge. The ETF’s forward P/E has compressed from roughly 30x to the low‑20s, aligning with historical averages for the software sector. A lower multiple can attract value‑oriented investors who were previously priced out.
AI Disruption: Threat or Catalyst for Software Valuations?
Generative AI powerhouses Anthropic and OpenAI are indeed rewriting parts of the software value chain. Their models can automate tasks traditionally performed by niche enterprise applications, sparking fears of a “software‑as‑a‑service” squeeze.
However, the AI rollout is still in its infancy. Major cloud providers like Microsoft and Oracle are committing hundreds of billions to AI‑focused data centers, yet these investments are largely aimed at providing the compute backbone for third‑party developers—not an immediate replacement for established software suites.
In the short term, AI could act as a catalyst rather than a destroyer. Companies that integrate AI into their product roadmaps are likely to command premium pricing, bolstering earnings growth and justifying higher multiples once the market internalizes the upside.
Insider Buying Signals: Microsoft’s Board Member Stakes the Claim
John Stanton, a long‑standing Microsoft board director, purchased 5,000 shares for just under $2 million. This marks the first insider acquisition in a decade. Insider buying is a classic bullish indicator because those closest to the business have the most information about upcoming product launches, contract wins, or cost efficiencies.
Historical data from Jefferies shows that the sole occasion insiders bought Microsoft stock in the past ten years coincided with a 51% rally over the following six months. While past performance isn’t a guarantee, the pattern underscores the weight of insider sentiment.
Cybersecurity: The Safe Haven Within Software
Even if generic AI erodes margins for traditional SaaS vendors, cybersecurity remains a fortress. The field demands deep domain expertise and continuous innovation to counter evolving threats—areas where large language models still lag.
Fast‑growing, premium‑priced firms such as Palo Alto Networks, Fortinet, and Synopsys exemplify this resilience. Their revenue growth rates are in the high‑teens, and they enjoy expanding TAMs (total addressable markets) as enterprises double down on security budgets.
Investors can capture this tailwind by allocating a slice of their software exposure to these niche leaders, effectively hedging against broader sector volatility.
Historical Pattern: Buying the Dip in Software Since 2020
From the pandemic‑driven surge in 2020 to the AI‑induced shakeout of 2023, software has exhibited a cyclical dip‑buy‑rebound rhythm. After each correction, the sector has delivered an average 18% gain within the subsequent nine months.
For example, the XLK ETF fell 27% in early 2022, found support around $92, and then rallied to $115 by year‑end, outpacing the S&P 500 by 4 percentage points. The current price corridor mirrors those historic bounce points, suggesting a repeatable pattern.
Investor Playbook: Bull vs Bear Cases for Software Stocks
Bull Case
- Continued insider buying reinforces confidence in fundamentals.
- AI integration adds incremental revenue streams, lifting EPS (earnings per share) forecasts.
- Cybersecurity leaders post double‑digit growth, cushioning overall sector performance.
- Technical support at $79‑$81 triggers a wave of stop‑buy orders, propelling the ETF above $90 within 3‑4 months.
Bear Case
- Rapid AI product rollouts from Anthropic/OpenAI force pricing pressure on legacy software.
- Forward P/E multiples compress further to the high teens, dragging valuations down.
- Macro‑economic headwinds (higher rates, slower corporate capex) curb software spending.
- Potential for a second‑order correction if earnings revisions turn negative across the board.
Strategically, a balanced approach could involve a core position in the XLK ETF for diversified exposure, complemented by overweighting cybersecurity stocks for defensive upside. Keep a tight stop‑loss around the $78 level to manage downside risk.