Software ETF Down 24% as Two-Year Earnings Estimates Rise 5%
The iShares Expanded Tech Software Sector ETF has plunged 24% over the past three months even as two-year forward earnings estimates for its holdings have climbed 5%. Rapid AI advances from Google and peers may force analysts to cut profit forecasts, further pressuring software valuations.
1. Software Sector Stock Declines
The iShares Expanded Tech Software Sector ETF has fallen 24% in the past three months, reflecting investor concerns over the impact of fast-evolving AI technologies from Google, OpenAI and Anthropic. Valuation multiples for these software names have contracted from around 35x to below 20x trailing earnings.
2. Forward Earnings Estimates Rise
Despite sharp share-price declines, two-year forward earnings estimates for the ETF’s constituents have increased by 5%, while related sectors viewed as AI-vulnerable—such as insurance brokers and advertising firms—have also seen positive 2026 EPS revisions. This divergence highlights Wall Street’s reluctance to recalibrate profit forecasts.
3. Calls for More Realistic Forecasts
Market strategists warn that persistent optimism on software earnings may be misplaced and urge analysts to lower expectations to align with unfolding AI disruption. Continued innovation from companies like Google could intensify downward pressure on future profits if revenue gains fail to match investor assumptions.