Software Stocks Rally as Big Tech Spending Eases Software Worries

Software stocks extended their rebound on Monday, as ramped up capex spending by US technology giants helped soothe nerves over the threat posed to the company by developments in artificial intelligence.

Shares in the software bellwether Oracle rallied as much as 12%, their biggest intraday rise since Sept. 10. Even with that move — which came on the heels of Amazon.com’s pledge to spend $200 billion this year on data centers, chips and other equipment — the stock is down around 50% from its September highs.

AppLovin rose 13%; Oracle and Unity Software rose 10%; Shopify rose 6%; Palantir rose 5%; Zoom rose 4%; Microsoft and ServiceNow rose 3%; Datadog rose 2%.

Short seller CapitalWatch has issued an apology and revised its report accusing a major AppLovin shareholder of financial crimes.

“Software isn’t dead,” D.A. Davidson analyst Gil Luria wrote in a note, upgrading the stock to buy from neutral. “We believe companies will continue to pay for Oracle’s products and that they will not be vibe coded away.”

Worries that AI will hurt demand for software products have slammed the sector in recent weeks, taking the IShares Expanded Tech-Software Sector exchange-traded fund down some 28% from its highs. While those concerns are unlikely to disappear, some are betting that at least some of the about $650 billion in spending for AI tools from Amazon, Alphabet Inc., Meta Platforms Inc. and Microsoft Corp. will flow to software companies.

In Oracle’s case, D.A. Davidson is also more optimistic on the company’s relationship with ChatGPT-maker OpenAI, which was facing questions about its lack of profitability and the need to grow rapidly to pay for its massive spending commitments.

“We are now more positive on OpenAI, based on changes in strategy, new frontier models, the pressure on Google’s competitors from its recent ascent, and progress on its fundraising efforts,” Luria wrote.

Of course, not everyone on Wall Street agrees. Melius Research analyst Ben Reitzes noted on Monday that Oracle “doesn’t generate cash and there is no guarantee that OpenAI beats Anthropic and Google.”

That hasn’t stopped Oracle from planning to raise $45 billion to $50 billion this year to build additional capacity for meeting the contracted demand from the company’s largest cloud customers, including Advanced Micro Devices Inc., Meta and Nvidia Corp.

Reitzes says he admires Oracle “for going for it here, but it may just be a tough slog as debt and equity will be an overhang for some time.”