Software Stocks Rebound: AI Trade Flips

Veteran technology investor Dan Niles has revised his long-held skepticism about software stocks, which were previously perceived as vulnerable to AI advancements. Initially, the market narrative favored chipmakers over software companies, anticipating AI would render traditional software obsolete. However, recent market movements and corporate earnings, particularly since late June 2026, indicate a potential reversal.

Niles now questions if investors became overly negative about software, citing the possibility that AI agents could significantly increase software usage. Estimates suggest AI agents might use software 10 to 100 times more often than humans, potentially boosting demand rather than diminishing it. This contrarian view is supported by strong performances from key software firms.

Atlassian, Workday, and Salesforce have all reported robust earnings and guidance, with Atlassian's stock jumping 35% after its August 6 report. Workday's potential acquisition interest and Salesforce's new partnership with Anthropic on August 26 further bolstered sentiment. These developments are making investors reconsider the sector's prospects.

Niles, who historically favored only systems of record, security, and gaming software, now sees potential across a broader industry spectrum. While acknowledging the AI bubble, he believes it is not yet poised to burst and sees similarities to the late 1990s internet boom. His concern lies with the immense capital flowing into AI, noting that not all companies will succeed.

He previously warned that some software companies, particularly commoditized workflow tools, face existential threats, while database and cybersecurity firms might prove more resilient. The challenge for investors now is discerning which software companies will thrive by leveraging AI and which may falter. Niles' evolving perspective highlights his willingness to adapt his investment thesis based on new evidence.