Key Points

The iShares Expanded Tech-Software Sector ETF holds 111 stocks.
The exchange-traded fund recently lost a third of its value due to a surge in concern that artificial intelligence (AI) would disrupt the traditional software industry.
However, enterprise software giants like ServiceNow, Atlassian, and Salesforce reported accelerating revenue growth during their most recent quarters, putting a big hole in the bear case for the industry.

The iShares Expanded Tech-Software Sector ETF invests primarily in U.S. software firms, with major allocations to leaders including Oracle, Microsoft, and ServiceNow.

The fund fell more than a third from its high after market sentiment shifted toward fears that AI tools would overhaul conventional software offerings. Two main worries emerged.

First, AI coding tools might enable companies to build custom alternatives to established enterprise products, rendering older solutions obsolete.

Second, AI-driven workforce reductions could cut the number of users, hurting revenue for firms that price software on a per-user basis.

Yet recent earnings from top software-as-a-service providers indicate these worries may be premature. Consequently, the ETF has climbed 40% from its April 10 low and sits just 11% below its earlier peak, leaving room for further gains.

An entire portfolio of high-quality software stocks

The ETF owns 111 stocks for broad software exposure. Its top 10 positions account for 62% of assets and feature leading industry names.

Oracle supplies cloud applications that streamline business operations and also serves as an AI infrastructure provider with efficient data centers. Microsoft brings legacy strength through Windows and Microsoft 365 while adding AI capabilities via Copilot and Azure. Palo Alto Networks and CrowdStrike lead in cybersecurity and continue to thrive amid rising AI-powered threats, trading near highs.

Additional holdings include Datadog for cloud monitoring, Take-Two Interactive in gaming, and Atlassian, recently added in size by some investors.

The iShares ETF could deliver strong returns from here

Since its 2001 launch the ETF has posted a 9.2% annualized return, outpacing the S&P 500's 8.5% over the same span. Further upside appears likely as investors may undervalue software's role in the AI age.

Deploying enterprise software demands extensive infrastructure for security and reliability, so AI-generated replicas alone will not suffice. ServiceNow, Atlassian, and Salesforce all posted faster revenue growth in their latest quarters, showing sustained demand. Atlassian also rolled out flexible value-based pricing that lets clients allocate budgets freely, shielding revenue even if user counts shift.

Given these factors, the software sector shows no signs of collapse, making the ETF a compelling choice for diversified portfolios.