TD Cowen: Software stocks rebound after worst quarter since 2008

LootboxPhobia · 2026-04-01T22:53:33+00:00

Software stocks declined by 1.9% in March, marking three consecutive months of poor performance, with a total return of -24%. Investor sentiment remains pessimistic, and semiconductor de-leveraging is affecting software short positions. Large SaaS companies are facing a tough earnings season, with order volumes falling short of expectations. Overall, software stock valuations have dropped to a five-year low, and after historical pullbacks, rebounds typically occur.

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2026-04-01 22:53:33

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Investing.com - Based on data from TD Cowen, using the iShares Expanded Tech-Software Sector ETF (NYSE:IGV) as a benchmark, software stocks fell 1.9% in March, completing the worst three-month performance since the fourth quarter of 2008. The March decline came after a 9.7% drop in February and a 14.5% fall in January, with a cumulative return of -24% over the three months.

TD Cowen said investor sentiment remains negative, with feedback indicating that traders are taking long positions in semiconductors and short positions in software. The firm noted that semiconductor deleveraging led to covering of short software positions, while semiconductor releveraging prompted an increase in short software positions. AI lab announcements—including news from Anthropic about a new Claude version and leaked Mythos models—continued to weigh on the sector.

According to TD Cowen, large software-as-a-service companies are facing a challenging earnings season, as order volumes for Adobe (NASDAQ:ADBE), Salesforce (NYSE:CRM), Workday (NASDAQ:WDAY), and SAP (NYSE:SAP) all failed to meet expectations. Many SaaS companies tested their new intra-year lows on March 27, then rebounded at the start of this week.

IGV outperformed the iShares Semiconductor ETF (NASDAQ:SOXX) by 5.0% in March, a notable improvement from lagging by 11.4% in February and 29.5% in January. Infrastructure software fell 4.0%; for the first time this year, it underperformed application software, which dropped 2.9%. Meanwhile, marketing software stocks Braze (NASDAQ:BRZE) rose 24%, and Klaviyo (NYSE:KVYO) rose 12%.

TD Cowen’s broader basket of software stocks traded at roughly 4.1x enterprise value to forward twelve-month sales at month-end, below 4.5x in February and 5.6x in January, reaching the lowest level in five years. Historical data show that in the three months following a major pullback in IGV, the average return was 1.9%, with a median return of 5.2%.

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