Software stock dogs have joined market rally. There's a classic investing lesson in the rebound

• Global X Cybersecurity ETF (BUG) surged 12% last week after being down 12% year-to-date, while First Trust NASDAQ Cybersecurity ETF (CIBR) gained 9% in the week despite a 6% year-to-date decline
• Wall Street analysts including Jefferies' Brent Thill and 'Big Short' investor Michael Burry turned bullish on software stocks at lower levels, calling AI disruption fears over-exaggerated
• Midterm election years historically see large drawdowns but strong 12-month returns afterward, suggesting patience may reward long-term investors despite near-term risks

Summary

Market Development:

Software and cybersecurity stocks rebounded sharply last week after severe year-to-date losses driven by AI disruption fears and high valuations. The Global X Cybersecurity ETF (BUG) surged 12% last week despite being down 12% year-to-date, while the First Trust NASDAQ Cybersecurity ETF (CIBR) gained 9% weekly but remains down 6% for 2026. Major companies like Microsoft fell nearly 20% year-to-date before the rally.

Key Players:

Leading cybersecurity firms including Palo Alto Networks (up 7% on analyst upgrade), CrowdStrike, Okta, Zscaler, and Fortinet are among the primary beneficiaries of the rebound. Microsoft represents the blue-chip software segment experiencing similar patterns.

Market Dynamics:

The selloff stemmed from investor rotation within tech toward select names and concerns that AI would disrupt the enterprise software sector. However, contrarian investors are now stepping in, with "Big Short" investor Michael Burry posting Wednesday about his bullish stance on software stocks. Jefferies analyst Brent Thill declared the selloff "overdone," while Piper Sandler reiterated an "overweight" rating on Palo Alto Networks.

Investment Outlook:

Amplify ETFs CEO Christian Magoon noted that stocks falling over 10% attract contrarian buyers, creating classic opportunity hunts. However, experts warn that midterm election years historically experience volatile, potentially larger drawdowns before strong 12-month recoveries. Analysts suggest investors may remain selectively underweight software while watching for opportunities in beaten-down subsectors, emphasizing that early entries into underperforming sectors often outperform late-stage momentum plays over subsequent 12-month periods.