Datadog, Oracle, Microsoft Lead Software Rally on AI

Software stocks have rebounded since an April low, with the iShares Expanded Tech-Software ETF (IGV) climbing roughly 42% and reversing a drop of as much as 30% earlier in 2026. IGV is now down less than 2% for the year.

Investors have shifted toward companies that integrate artificial intelligence into products and adjust pricing to reflect customer usage rather than employee headcount. Market activity has been concentrated in cloud security, monitoring and telemetry providers, chip-design software firms and large technology platforms.

Daniel Morgan, portfolio manager at Synovus Trust, described AI as “remapping the industry rather than destroying it.” Portfolio managers point to firms that can sell tools and services for AI deployments or move to usage-based pricing as beneficiaries of the rebound.

Datadog has been a notable performer. The company has seen rising demand for monitoring and security tools used by AI-powered data centers. Datadog shares have nearly doubled this year and reached a record high after the company raised its annual outlook. Jonathan Cofsky, portfolio manager at Janus Henderson, pointed to Datadog’s usage-based pricing model as an advantage in the current environment.

Palo Alto Networks has attracted investor interest amid growing cybersecurity needs, trading up more than 57% year to date and touching a record high. Doug Rogers, portfolio manager at Eaton Vance, observed that increases in threats and awareness could support stronger pricing for security products.

Oracle has regained investor support after earlier losses. Marc Dizard, chief investment officer at Huntington National Bank, highlighted Oracle’s large customer base as a source of flexibility as the company develops AI-related offerings. Microsoft remains a preferred long-term option for many investors because of its scale and wide product set, with growth linked to its Copilot assistant and Azure cloud platform. Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, noted Microsoft’s size and product breadth should keep it competitive.

The rally accelerated after strong quarterly results and outlooks from Snowflake and MongoDB improved sentiment for data and cloud software. Momentum increased further when Nvidia CEO Jensen Huang, speaking at Computex in Taipei, said AI agents will use more tools than before and called the period “an incredible time to be a software company.” Those remarks coincided with additional buying across software names.

Gains have not been uniform across the sector. The largest increases have been posted by companies with products directly tied to AI infrastructure, security and usage-based billing. Analysts and portfolio managers continue to focus on firms that can convert AI adoption into measurable revenue through product integration and pricing that reflects customer consumption.