Cybersecurity and enterprise software stocks are leading the market in 2026 on concerns that AI will displace a wide range of companies in the enterprise space where it dominates the narrative. But they ended a brutal losing streak last week, joining a broader market rally that saw the Dow Jones Industrial Average and S&P 500 recoup losses from the U.S.-Iran war.
Amplify ETF CEO Christian Magoon said on this week’s ETF Edge that cybersecurity is “a victim of some of the AI-related headlines.”
It wasn’t just a niche cybersecurity name. Take Microsoft, for example, which recently fell nearly 20% for the year. The company’s stock price rose 13% last week.
A big factor in the software stock sell-off was investors’ rotation within the technology industry into AI infrastructure, semiconductors and other large-cap tech stocks, Magoon said, noting that cybersecurity stocks and ETFs are heavily weighted toward software companies, leaving them behind even as these businesses continue to grow on a fundamental basis.
But Wall Street is now more bullish on low stock prices. Brent Till, a tech analyst at Jefferies, said last week that the worst may be over for software stocks. “I think this notion that software is dead and that Anthropic and OpenAI are going to kill the whole industry is overblown,” he told CNBC’s “Squawk Box” on Wednesday.
“Big Short” investor Michael Varley wrote in a post on Substack on Wednesday that he is bullish on software stocks after the recent selloff. “Software stocks remain interesting as the extreme decline accelerated last week stemming from a reflexive positive feedback loop between software stock declines and changes in bank debt markets,” he said.
The Global However, BUG rose 12% last week. The First Trust Nasdaq Cybersecurity ETF (CIBR) is down 6% since the beginning of the year, but is up 9% over the past week.
Piper Sandler analyst Rob Owens reiterated his “overweight” rating on Palo Alto Networks, which helped drive the stock’s 7% rise, but is now down about 6% from a year ago. Other companies in the industry, such as CrowdStrike, have made similar moves.
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Global X Cybersecurity ETF and S&P 500 performance over the past year.
Magoon said strong results are not enough to boost the stock price as expectations for the cybersecurity sector may have become too high, creating a crowding effect among investors. But the sector’s 2026 selloff and subsequent recovery is also a reminder that short-term stock price declines can present opportunities.
“When you drop more than 10% in some of these subsectors, you start to see contrarians start saying, ‘Well, I guess I’ll take a look at this,'” Magoon said.
He said AI adds both opportunity and uncertainty to the cybersecurity equation, increasing demand but also creating new competition. But he added, “I think the dip is a good buy in an AI-driven world,” especially since the risks to companies could lead to more M&A in cyber names that could benefit stock prices.
For now, investors may look for opportunities in higher margins rather than rushing back into beaten-down technology stocks. “I think investors will remain underweight software,” Till said.
But Magoon advises investors to at least remind themselves to pay attention to market niches during significant economic downturns. “The best-performing companies are the ones that are least bought and perform best over the next 12 months, as opposed to companies that pile up in the late stages,” he said.
This may have been a mindset that worked against the last investors in cybersecurity and enterprise software in mid-2025 when negative sentiment started to build, but it’s starting to play into the sector’s stocks again, at least for now.
On the other hand, this year’s biggest winners are also good examples of how trades can extend in either the bullish or bearish direction. Citing data from Bank of America, Magoon said institutional energy holdings last year were at multi-year lows. “A reversal in sentiment can be a good indicator,” he said.
But he cautioned that selectively buying stocks that have fallen must contend with the risk of a potentially larger market drawdown in 2026. This is because, historically, midterm election years have been marked by large drawdowns. “If you think it’s bad now, it could get much worse,” Magoon said. But the data also contains a silver lining for patient investors, he added. After the midterm election financing period ended, the market posted very strong 12-month returns. So for investors with a long-term horizon and no need for short-term liquidity, “stick with it,” Magoon said.
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