Software Index

State of the Market

Amidst a turbulent software landscape, where AI disruptions challenge traditional models, a resilient push toward cloud and intelligent systems is reshaping the industry. Oracle exemplifies this, with recent results highlighting cloud infrastructure resilience amid valuation adjustments. Cloud applications revenue rose markedly, multicloud database revenue grew 531% year over year, and AI infrastructure revenue increased 243%. Remaining performance obligations hit $553 billion, driven by AI contracts, signaling strong enterprise commitments. In the AI computing and inference service layers, Oracle sits as a key infrastructure provider in the IaaS and PaaS tiers, offering GPU-based high-performance computing for training and managed generative AI services for inference, integrating across the stack to support enterprise workloads. Chairman and CTO Larry Ellison noted AI’s role, saying, “Thank God we have these coding tools now that allow us to build a comprehensive set of software—agent-based software—to automate an ecosystem like health care or financial services,” indicating Oracle’s resistance to the ‘SaaS Apocalypse’ through integration of these AI tools. Co-CEO Clay Magouyrk added that AI infrastructure demand exceeds supply, with over 10 gigawatts secured for expansion. Though Oracle was affected along with most firms in the software correction, it’s apparent that leadership sees a way through this valuation storm brought on by continued AI advancements.

As March progresses, technological changes and geopolitical tensions are influencing broader investment priorities. Since the beginning of the month, the S&P 500 has declined 3.7%, while the Nasdaq has fallen 2.5%. Software stocks extended their February declines into March, as major companies lost value on expectations that continued AI-driven gains for end customers would reduce software spending. However, in subsequent weeks, initial valuation declines moderated, with partial recoveries in select stocks as markets scrutinized company-specific details. Investors differentiated between firms vulnerable to AI automation, such as those reliant on seat-based subscription models, and those adopting integrated AI solutions, supporting a nuanced view of sector valuations.

This tech adjustment has favored hardware and infrastructure investments, underscoring a broader shift in sentiment toward assets with tangible resilience amid uncertainty. Corporate guidance in traditional software weakened as AI agents streamlined customer operations, reducing demand for premium tools, yet this also highlighted opportunities for adaptation that could stabilize the space over time.

Compounding tech shifts, the Iran conflict has disrupted energy flows, with the Strait of Hormuz nearly closed since early March. Iranian attacks on vessels have disrupted trade flows, pushing oil prices above $105 per barrel. This escalation, after U.S. and Israeli strikes, forced shipping reroutes, adding weeks to transit times and raising costs for U.S. importers. This risks amplifying supply chain vulnerabilities and inflationary pressures.

These dynamics intersect with U.S.-China trade tensions, as President Trump presses Beijing for aid in securing the Strait amid summit preparations. Paris talks between Treasury Secretary Bessent and Vice Premier He Lifeng addressed tariffs and minerals, but China’s surging exports ahead of potential hikes suggest limited concessions, potentially worsening U.S. strains if tensions rise. This occurs in the context of Trump-Xi talks planned for later this year.

Labor signals added unease, with February nonfarm payrolls contracting by 92,000, missing estimates of about 50,000 additions, and unemployment rose to 4.4%. This contrasts with estimated fourth-quarter 2025 GDP growth of 0.7%, bolstered by consumer spending, though 2026 estimates hold at a 2.2% amid slowdown risks.

Inflation remained persistent, with February CPI at 2.4% year over year, driven by shelter and energy, and core at 2.5%. January’s Producer Price Index rose 0.5% monthly, as businesses passed selective costs. As expected, the FOMC held rates steady, given mixed signals in the economy muddied by global trade issues stemming from conflicts that could prove temporary.

Looking forward, investors face balanced prospects: opportunities in AI hardware and defense amid software scrutiny, offset by labor softening, inflation persistence, and trade volatility.