Software Stocks Post Best Month Since 2001 as AI Fears Ease

CNBC reported Friday that software stocks wrapped up their strongest monthly performance in roughly 25 years, as blowout earnings from Snowflake and Okta quieted Wall Street’s darkest fears about AI wiping out the sector.

SaaS Rally Catches Wall Street Off Guard

The iShares Expanded Tech-Software ETF climbed 8% across the final week of May and finished the month up 21%. That is the fund’s best monthly return since October 2001. Despite the surge, the ETF remains down nearly 4% for the year, still lagging the Nasdaq’s 18% gain in 2026.

The rally came after several quarters of anxiety over so-called “vibe coding,” where AI tools from Anthropic, OpenAI, and others allow users to build applications in minutes. That threat fueled talk of a “SaaSpocalypse” that would hollow out traditional software businesses. This week’s results suggest the narrative may have moved too fast.

Snowflake and Okta Drive the Gains

Data platform company Snowflake was the week’s standout performer. The stock surged nearly 50% in four sessions after the holiday, recording its best single day ever on Thursday. The company announced a $6 billion cloud and chip partnership with Amazon and raised full-year guidance. Analysts at Argus Research lifted their price target to $300, calling Snowflake a “picks and shovels” play on generative AI. The stock closed Friday at $255.55.

Snowflake CEO Sridhar Ramaswamy told analysts that customers are deploying and scaling AI workloads at an accelerating pace. Identity security firm Okta surged a record 30% on Friday after beating earnings estimates. CEO Todd McKinnon told CNBC that the rise of agentic AI is forcing every organization to invest heavily in identity infrastructure over the next several years.

A Sector That Had Been Left Behind

The software sector spent much of the past year underperforming broader markets. Concerns mounted that generative AI tools would cannibalize demand for established SaaS products and erode subscription revenue. The October 2001 comparison carries weight for longtime investors. That month’s software rebound proved short-lived amid the broader dot-com collapse. Whether May 2026 marks a genuine inflection remains an open question.

Broader Software Cohort Moves Higher

The rally spread well beyond those two names. Atlassian gained 26% for the week and ServiceNow rose more than 20%. Shopify, Workday, and Asana each advanced at least 14%. Oracle jumped 16%, while Microsoft rose nearly 8%, though it remains the worst-performing megacap tech stock of 2026, still down around 7% year to date.

The week’s results suggest that software companies with credible AI strategies are winning investor confidence back, even as uncertainty over the sector’s longer-term structure persists.