Shares of Oracle Corporation (NYSE: ORCL) rose on Tuesday as optimism returned to the software sector following a recent period of decline prompted by concerns over rapid advancements in artificial intelligence. Investors seemed to respond positively to analyses suggesting that the selloff in AI-related stocks may have been an overreaction to potential market disruptions.
Oracle stock exhibited significant strength in this environment, reflecting a broader sentiment change among market participants. Recent market dynamics had been influenced by mounting apprehension that AI technologies could severely disrupt established software companies. However, some leading Wall Street strategists now suggest that these fears might be premature and have led to an undervaluation of fundamentally sound software firms.
JPMorgan strategists, including Dubravko Lakos-Bujas and his team, pointed out in a recent note that the pronounced drop in software stocks over the past week has created an attractive buying opportunity. According to their assessment, market participants have been bracing for far-reaching AI-induced disruption, an expectation they judge unlikely to materialize in the near term. They argue that sentiment has skewed too negative, particularly given the robust business metrics still evident among many software companies. With investor positioning having been largely dismantled and fear elevated to high levels, they anticipate a recovery in resilient, higher-quality software names.
The software sector's volatility last week was triggered by news from Anthropic, which introduced new plug-ins for its Claude Cowork AI agent. This development exacerbated worries that accelerating AI advancements might encroach upon the foundational business activities of traditional software providers. This wave of anxiety contributed to a steep decline in the S&P 500 software and services index, which fell as much as 17% over just six trading sessions before beginning to regain some lost ground.
Adding to the improved market tone, Morgan Stanley offered a bullish perspective on the software segment. The firm's research highlights improving revenue trajectories, positive earnings revisions, and potential gains for large technology companies arising from a softer U.S. dollar exchange rate. Katy Huberty, Morgan Stanley's global director of research, noted that the recent downturn in software valuations appears largely driven by shifts in investor sentiment rather than changes in the underlying business fundamentals.
Supporting the recovery, Datadog Inc. reported better-than-expected financial results for its fourth quarter. The cloud infrastructure monitoring company announced earnings per share of 59 cents, significantly surpassing analysts' estimates of 39 cents per share. Revenue increased by $215 million compared to the prior year period. Furthermore, Datadog provided optimistic guidance for fiscal year 2026, projecting earnings per share in the range of $2.08 to $2.16. This strong earnings report contributed to the broader rebound among software stocks.
At the time of publication on Tuesday, Oracle shares had climbed 2.92% to $161.12, reflecting a marked improvement in investor confidence within the technology sector.
In summary, the recent downturn in software stocks, driven by AI-related disruptions fears, appears to be subsiding as analysts and investors reassess the sector's resilience. The combination of positive corporate earnings reports, cautious optimism from strategists, and improving economic indicators has helped rekindle interest in quality software companies, including established players like Oracle.