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Strategists at Deutsche Bank say the market’s AI fear has reached its peak.
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The company upgraded software stocks to overweight and upgraded its technology sector rating.
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Solid revenues from software companies don’t support fears that AI will upend the industry.
Deutsche Bank said the reality does not match investors’ fears that AI will eat software.
Strategists at the bank issued a bullish call on software stocks on Wednesday after weeks of concerns that AI will cause a corner shakeout of the tech sector. They indicated that investors are undervaluing the best software stocks.
“Software companies are trading at historically low premiums to the market,” they wrote.
Although valuations indicate the sector will underperform the broader market, analysts say the reality is different. “The facts tell a different story,” the bank said.
European equity strategists Maximilian Uleer, Carolin Raab and Francesca Mazzali say fears about AI have reached their peak.
The strategists have upgraded their outlook on the sector and are now ‘overweight’ on software stocks and neutral on technology, an upgrade from the ‘underweight’ rating they previously had on the sector.
The iShares Comprehensive Tech-Software Sector ETF is down 20% since the start of 2026, while the larger tech sector is down almost 4%.
Intuit, Salesforce, ServiceNow and Adobe were among the hardest-hit stocks in the sector. Some of these names have made it into stock pick lists for companies like Jefferies, JPMorgan, Morningstar and Wedbush.
Despite the dramatic decline in software stock valuations, Deutsche points out that they are not aware of any software company that expects AI to have a negative impact on revenue this year.
“The narrative focuses on the negative effects on software, while ignoring the positive effects of lower programming costs and potential product improvements due to AI,” the strategists said.
Deutsche reported that previous sharp sell-offs were associated with slowing growth in one to two quarters. They noted that software revenues remained flat in 2022 and turned negative in 2008 and 2001.
The strategists added that U.S. software companies’ profits rose 29% year-over-year in the fourth quarter of 2025, and that 2026 earnings expectations have been revised upward. That’s a bullish signal for what’s to come in space, despite lingering AI fears.
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