In 2026, concerns about AI possibly displacing numerous companies in the enterprise sector have put cybersecurity and enterprise software stocks in the spotlight. After facing a tough period, these stocks bounced back last week as Iran recovered its losses from the US-Iran conflict. This rally included notable indices like the Dow Jones Industrial Average and the S&P 500.
Christian Magoon, CEO of Amplify ETF, mentioned on this week’s ETF Edge that cybersecurity stocks have struggled due to some AI-related news. Interestingly, it wasn’t just small players in cybersecurity feeling the heat; even major companies like Microsoft saw a nearly 20% drop in their stock over the past year. However, they did rise by 13% last week.
A significant reason for the decline in software stocks was the shift in investor interest towards AI infrastructure, semiconductors, and large-cap tech firms. Magoon pointed out that since many cybersecurity stocks and ETFs are heavily tied to software companies, they lagged behind even as the overall tech sector continues to show fundamental growth.
But Wall Street’s outlook seems to be shifting positively towards these low stock prices. Brent Till, a Jefferies tech analyst, expressed optimism last week, suggesting that the worst might be behind for software stocks. He believes the narrative that software is doomed due to competition from companies like Anthropic and OpenAI is exaggerated.
Investor Michael Varley, known for his work on “Big Short,” shared an optimistic perspective towards software stocks on Substack, stating that the recent selloff has made them appealing again. He attributes this drastic drop to a reactive cycle between falling software stocks and the bank debt market changes.
The Global X Cybersecurity ETF (BUG) has seen about a 12% decline this year, though it climbed 12% last week. Its leading holdings include companies like Palo Alto Networks, Fortinet, Akamai Technologies, and CrowdStrike. However, the First Trust Nasdaq Cybersecurity ETF (CIBR) is down 6% this year but gained 9% last week.
Applying an “overweight” rating, Piper Sandler analyst Rob Owens highlighted Palo Alto Networks as a key player, which contributed to a 7% stock rise, although it’s still down around 6% from a year ago. Other firms in this space, like CrowdStrike, are making similar moves.
Magoon commented that even solid results aren’t enough to elevate stock prices if expectations for the cybersecurity sector are excessively high. He noted that the recent selloff could serve as a reminder that short-term declines can lead to opportunities. As he put it, a 10% drop often brings in contrarians looking for a bargain.
He emphasized that while AI introduces both new possibilities and challenges, it creates heightened demand and competition in cybersecurity. “I think the dip is a good buy in an AI-driven world,” he suggested, hinting at the potential for mergers and acquisitions that could positively impact stock prices.
Currently, investors may prefer higher-profit margins over returning immediately to struggling tech stocks. Till feels there will still be an underweight position in software going forward. Yet, Magoon advises investors to keep an eye on niche markets during tough economic times, as those often outperform over the next year.
This might have been a lesson for earlier investors in cybersecurity and enterprise software during the negative sentiment period in mid-2025, but it’s increasingly relevant again now. Conversely, this year’s biggest successes highlight how trades can swing positively and negatively. Magoon referenced Bank of America data that indicated institutional energy holdings were at multi-year lows last year. “A sentiment shift can be a strong indicator,” he noted.
However, he warned that selectively purchasing stocks that have decreased in value might carry risks of a wider market downturn in 2026. Historically, midterm election years tend to see significant market drops. “If you think it’s bad now, it could get much worse,” he cautioned, though he acknowledged that post-midterm periods often bring robust market returns. For those with a long-term view and no immediate liquidity needs, he advised, “stick with it.”
