Citi Highlights Investment Opportunities in Software Stocks Amid AI-Driven Market Uncertainty

Imagine if a new robot came to town and everyone worried it would take over all the jobs, causing businesses to panic. That’s kind of what’s happening right now with artificial intelligence (AI) and software companies—it’s making investors nervous, but there might be a silver lining.

Why This Matters for Investors

Software stocks have had a rough year because people are afraid AI could make old business models, like “software as a service,” less valuable. For example, the iShares Expanded Tech-Software Sector ETF (IGV) is down over 20% in 2026 and dropped more than 8% just in February. When a new AI tool by Anthropic appeared, the sell-off got even worse, and worries spread to other industries too.

Bull Case: Reasons for Hope

• Some companies are still strong underneath: Citi analysts looked for software companies with big market values (over $2 billion) that have dropped at least 10% in the last month but are actually expected to earn more money in the next few years.
• Big names still on the list: Microsoft is down, but experts at Citi, Goldman Sachs, and Wedbush all think it’s a good buy right now. Palantir, another tech company, also made the list even though its stock is almost 37% below its high—despite beating earnings expectations and giving strong predictions for the year.
• History shows rebounds happen: After big drops, quality tech stocks often bounce back. For example, after the dot-com crash, software stocks that kept growing earnings recovered faster than others (source).

Bear Case: Reasons to Be Careful

• AI is a real threat to some business models: If AI can do what a software company does, some companies could lose customers or see profits shrink.
• Stock drops can cause more panic: When prices fall fast, even good companies can get caught in the selling, making it hard to tell what’s a bargain and what’s trouble.
• Market is still shaky: Even though earnings are improving for some, the overall market is nervous, and that could keep prices low for a while.

What the Experts Are Watching

Citi’s analysts say investors should pay attention to companies whose earnings are going up, even if their stock price has dropped. They think these companies are “de-risked,” meaning the bad news is already priced in, and any good news could send shares higher. This is different from just betting on technical charts—they’re looking at the real business results.

Wall Street is also noticing that, in the past, when company earnings improved during tough times, those stocks often led the next big rally. According to a Morningstar study, stocks with the strongest earnings growth outperformed the market by 3% per year over the last two decades.

Investor Takeaway

• Look for companies with rising earnings, not just falling prices. Stocks like Microsoft and Palantir are down but still making more money each year.
• Don’t panic when you see red. Sometimes, market drops create good opportunities if you focus on the fundamentals.
• Diversify your tech holdings. Don’t put all your eggs in one basket—spread out your investments across software, AI, and other sectors.
• Watch for signs of a rebound. When panic fades and earnings keep rising, these stocks could bounce back fast.
• Keep learning. Pay attention to expert reports and studies to help guide your decisions, and always double-check the basics before you buy.

For the full original report, see CNBC