As the artificial intelligence (AI) revolution accelerates, the spotlight has largely remained on hardware makers, with developments such as NVIDIA’s NVDA GPU shipments and Blackwell architecture frequently dominating headlines. However, a quieter yet potentially lucrative shift is unfolding as software companies emerge as the critical link between raw computing power and real-world business applications.
As per a report from Gartner, global spending on AI application software and infrastructure software, as of September 2025, totaled $298.2 billion, more than doubling from the prior year. This surge in investment is flowing directly into cloud platforms, cybersecurity solutions and advanced data pipelines, strengthening the revenue outlook for software infrastructure companies.
As the AI infrastructure buildout moves from “building the engine” to “driving the car,” software giants like Microsoft MSFT and exchange-traded funds (ETFs) holding them are stepping into the driver's seat, offering exceptionally bright growth opportunities for savvy investors.
That said, capturing meaningful alpha in this rapidly expanding ecosystem requires investors to understand why these software platforms are thriving and what the underlying data suggests about their long-term growth prospects before allocating capital to the funds that hold them.
Why Software Companies Are Flourishing in the AI Era
The connection between software and the AI infrastructure buildout is deeply interconnected. Once enterprises deploy AI servers, they often face the reality that raw AI models cannot deliver meaningful business outcomes without application software, integrated data systems and strong cybersecurity frameworks. That dynamic is creating significant opportunities for software firms.
For example, Microsoft posted 40% year-over-year growth in Azure and other cloud-services revenue in its latest quarter reported, driven largely by rising AI-workload consumption. Similarly, Palantir PLTR posted a remarkable 133% year-over-year increase in U.S. commercial revenues during the first quarter of 2026, fueled primarily by adoption of its Artificial Intelligence Platform, which enables defense and logistics organizations to deploy large language models (LLMs) on private data environments.
These examples underscore a critical shift in the AI landscape: monetization is increasingly migrating toward the software layer. Software providers are benefiting because they control three essential components required to deploy large language models (LLMs) effectively — the user interface, workflow integration and proprietary enterprise data. As the AI ecosystem matures, high-margin software business models are likely to capture long-term value more efficiently than cyclical hardware providers.
The Outlook: Maximizing Returns via ETFs
For investors hunting alpha, the outlook for the global AI software market remains compelling. As per a recent report published by Gartner in May 2026, global spending on AI software will grow 60% year over year to $453.2 billion at the end of this year and expand further to reach $638.4 billion by the end of 2027. This suggests a multi-year revenue tailwind for software vendors.
Despite the strong opportunity, choosing individual stock winners in AI remains a difficult task. The AI transformation is impacting a wide range of industries, from cloud infrastructure and database management to cybersecurity and enterprise workflow software. In such a rapidly evolving environment, a single miscalculation, such as backing the wrong model ecosystem or losing control over valuable proprietary data, can create lasting competitive disadvantages.
Against this backdrop, a more diversified and potentially lower-risk strategy is to invest through ETFs. These funds provide exposure across the broader software ecosystem, allowing investors to participate in the AI-driven growth trend while reducing the company-specific risks associated with owning a single stock. ETFs also offer liquidity, instant diversification and access to both established large-cap leaders and emerging smaller-cap innovators.
Three ETFs to Play the AI Software Surge
Considering the aforementioned discussion, investors interested in gaining exposure to the software boom may consider adding the following ETFs to their portfolios:
iShares Expanded Tech-Software Sector ETF IGV
This fund, with net assets worth $15.35 billion, offers exposure to 111 software, cloud, and digital media companies. Oracle ORCL holds the first position in this fund, with 9.22% weightage.
The fund charges 39 basis points (bps) as fees and holds a Zacks ETF Rank #2 (Buy).
Invesco AI and Next Gen Software ETF IGPT
This fund, with a market value worth $1.17 billion, offers exposure to 101 companies with significant exposure to technologies or products that contribute to future software development through direct revenues. SK Hynix holds the first position in this fund, with 12.02% weightage.
The fund charges 56 bps as fees and sports a Zacks ETF Rank #1 (Strong Buy).
State Street SPDR S&P Software & Services ETF XSW
This fund, with assets under management worth $423.5 million, offers exposure to 136 companies from the following sub-industries: Application Software, Interactive Home Entertainment, IT Consulting & Other Services, and Systems Software. Arteris Inc. holds the first position in this fund, with 1.63% weightage.
The fund charges 35 bps as fees and carries a Zacks ETF Rank #2.
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Microsoft Corporation (MSFT): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Oracle Corporation (ORCL): Free Stock Analysis Report
State Street SPDR S&P Software & Services ETF (XSW): ETF Research Reports
iShares Expanded Tech-Software Sector ETF (IGV): ETF Research Reports
Palantir Technologies Inc. (PLTR): Free Stock Analysis Report
Invesco AI and Next Gen Software ETF (IGPT): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).