The iShares Expanded Tech-Software Sector ETF (IGV 0.14%) is an exchange-traded fund (ETF) that mostly invests in U.S.-based software companies, so it has large positions in leaders such as Oracle, Microsoft, and ServiceNow.
The ETF recently declined in value by more than a third from its peak as the narrative on Wall Street pivoted to the idea that artificial intelligence (AI) systems were about to upend the entire traditional software industry. There were two primary concerns.
First, it appears possible that AI programming assistants like Anthropic's Claude Code could allow businesses to create their own versions of popular enterprise software products, which would make those legacy titles redundant.
Second, if the use of AI reduces the number of people working in jobs that require them to heavily use software, then those companies that sell or rent software titles on a per-user basis would suffer sharp declines in revenue.
However, based on a series of recent earnings reports from some of the leading software-as-a-service companies, those concerns appear to be overblown for now. As a result, the iShares Expanded Tech-Software Sector ETF has rebounded by 40% from its 52-week low, which was set on April 10. It's now only about 11% below its prior peak. But here's why there is still time to buy.
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An entire portfolio of high-quality software stocks
The iShares Expanded Tech-Software ETF holds 111 stocks, offering investors diversified exposure to the software space. Its top 10 holdings include some of the most prominent names in the industry, and they represent 62% of the value of its portfolio.
|
Stock |
iShares ETF Portfolio Weighting |
|---|---|
|
1. Oracle |
10.4% |
|
2. Microsoft |
7.7% |
|
3. Palo Alto Networks |
7.6% |
|
4. Palantir Technologies |
7.2% |
|
5. CrowdStrike |
6.3% |
|
6. Salesforce |
6.2% |
|
7. Applovin |
5.2% |
|
8. ServiceNow |
4.2% |
|
9. Cadence Design Systems |
3.6% |
|
10. Adobe |
3.6% |
Data source: iShares. Portfolio weightings are accurate as of June 1, 2026, and subject to change.
Oracle offers a portfolio of cloud-based software applications to help businesses automate core operations to boost productivity. But the company also doubles as an AI infrastructure play because it builds some of the fastest and most cost-efficient data centers in the industry.
Microsoft, on the other hand, is one of America's oldest consumer and enterprise software companies, with blockbuster legacy products like Windows and Microsoft 365 (a productivity suite that includes Word, Excel, and PowerPoint). Like Oracle, it also offers some AI exposure through its Copilot virtual assistant and its Azure cloud computing platform.
Palo Alto Networks and CrowdStrike are two of the world's largest cybersecurity vendors. As bad actors use AI to launch more sophisticated attacks than ever before, these companies should experience significant growth in demand from their enterprise customers. These two stocks have bucked the software sell-off, and both trade near record highs as I write this.
The iShares ETF holds a number of other software powerhouses outside its top-10 positions. They include cloud observability giant Datadog, gaming titan Take Two Interactive, and an enterprise software stock I recently bought hand-over-fist -- Atlassian.
The iShares ETF could deliver strong returns from here
The iShares ETF has a strong track record. It has delivered a compound annual return of 9.2% since its inception in 2001, which was actually better than the 8.5% annualized return in the S&P 500 over the same period. I think it could deliver above-average gains from here because investors might be underestimating the importance of software providers in the AI era.
NYSEMKT: IGV
Key Data Points
It takes a ton of behind-the-scenes infrastructure to successfully deploy enterprise software, especially if security and uptime are a priority. Therefore, simply replicating some of the features of a popular software product by using an AI coding assistant won't be enough, which is why businesses aren't racing to ditch their providers. In fact, ServiceNow, Atlassian, and Salesforce each delivered accelerating revenue growth in their most recently reported quarters, which simply wouldn't have happened if AI were destroying demand.
Moreover, some software companies are experimenting with new pricing structures to protect their revenue in the event AI does shrink the global workforce and thus the pool of paying users. Atlassian recently introduced a value-based pricing model called Flex, which allows enterprises to set a fixed budget for its services and allocate it however they want during their contract period. Therefore, they can immediately try new products without having to negotiate new terms and without having to predict how many licenses they might need for their employees.
With all that in mind, I don't think the software industry is about to meet its demise, so the iShares Expanded Tech-Software Sector ETF could be a great addition to any diversified portfolio.
