AI Software Reversal: Usage Billing Stocks Lead
Software stocks rebound as B2B usage-based AI features drive revenue. Winners emerging.
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Software has long been the darling of the US stock market’s tech boom over the past decade or so. These companies grow quickly with high upside potential—if you pick the right ones, they can easily deliver substantial returns for investors. However, this very group of market favorites has faced an unprecedented crisis in the past six months. With the explosion of AI Agents, the narrative of AI disruption has grown extremely loud. The entire software industry has been brutally bloodied, with almost no one escaping unscathed. The software stock ETF IGV has dropped nearly 40%, and many star individual stocks have been cut in half.
That said, a quiet reversal seems to be underway recently. As software companies release their earnings reports one after another, we are seeing a handful of software stocks begin to surge. For example, Snowflake soared 36% after its earnings, Datadog rose 32%, and TEAM jumped 30%, among others. At the same time, however, the majority of software stocks continue to face market punishment—even strong results have failed to dispel the skepticism.
What investment logic lies behind this contradictory phenomenon? Over the past period, I have repeatedly expressed my optimism toward the current software sector. I have said that instead of chasing the already sky-high foundational layer plays, it is better to position in application-layer software companies that still have reasonable valuations and are about to benefit from numerous catalysts. This is also one of my most favored US stock investment opportunities for the second half of this year. As I promised earlier, I will conduct in-depth research on application-layer software companies.
Today, let’s start from this earnings season and examine what kind of software companies can prove themselves and win Wall Street’s recognition—and which ones will continue to be punished. From these trading dynamics, can we identify the next software opportunity ready to explode? I will also share my personal, specific software stock selection methodology and portfolio allocation approach.
