Deutsche Bank upgrades software stocks amid AI disruption fade

Investing.com -- Deutsche Bank has upgraded its stance on software stocks, citing fading fears over AI disruption and strong earnings momentum.

Analysts Maximilian Uleer, Carolin Raab and Francesca Mazzali said European and U.S. software equities had underperformed over the past six months.

“Up until the Iran conflict, ‘AI disruption’ caused the European Software sector to fall by 23% and US Software to fall by 19% over the past 6 months,” the analysts wrote.

The bank noted that software companies are trading at historically low premiums versus the broader market.

“Current valuations imply that consensus believes that Software companies will no longer outgrow the broader index. Facts are telling a different story,” Deutsche Bank said.

In the U.S., software earnings rose 29% in Q4, and expectations for 2026 have been revised upward. European software earnings forecasts are showing signs of bottoming out, the analysts said.

Deutsche Bank added that the narrative has overemphasized AI-related risks while overlooking potential benefits, including lower programming costs and product improvements.

“We have still not come across a single Software company that expects a negative revenue effect from AI in 2026,” the note said.

As a result, Deutsche Bank upgraded tech from Underweight to Neutral and turned overweight on software within the sector, signaling confidence that the recent pullback may offer a buying opportunity.

The bank concludes that “AI disruption worries have peaked,” positioning software equities as a key area for investors seeking growth in 2026.

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