The relentless artificial intelligence (AI) boom is lately shifting its narrative. For most of the past two years, the AI boom has been synonymous with one thing: hardware, particularly characterized by NVIDIA's dominance and the insatiable demand for its semiconductors, which captured the market's imagination.
However, a quiet but powerful rotation has been underway of late. Panic that AI would destroy the software industry is gradually fading. Instead, a "mini bull market" is emerging, signaling a mature new phase for the AI boom.
This sudden reversal has set the stage for investing in software-focused exchange-traded funds (ETFs), as institutional capital is actively rotating into scalable application layers.
But before diving straight into the specifics of these ETFs, the underlying factors driving this sudden enterprise software boom, paired with a strengthening long-term outlook, might reveal why these funds are becoming essential tools for tech investors.
Tailwinds Lifting the Software Sector
The recent macro recovery highlights an intense polarization within the software ecosystem. Earlier panic suggested that AI would entirely displace traditional software architectures, leading to sluggish performance for legacy names like Salesforce CRM and Snowflake SNOW, both of which struggled in recent years to prove immediate AI monetization to demanding shareholders.
However, recent narratives suggest that AI will eventually create massive new demand for software, not destroy it. To this end, Nvidia CEO Jensen Huang recently suggested that AI agents will drive increased software demand and cannibalize the enterprise software industry.
This can be supported empirically. In fiscal 2026, Snowflake Intelligence, which provides enterprise-grade agent capabilities, has been adopted by more than 2,500 accounts within just three months of its launch, nearly doubling sequentially. On the other hand, Cortex Code, a transformational coding agent from SNOW, has been embraced by more than 4,400 customers, enabling faster development and deployment of AI-powered applications.
Salesforce’s fully autonomous AI agent, Agentforce platform, saw explosive adoption lately, with CRM’s Agentforce and Data 360 product lines exceeding $2.9 billion in annual recurring revenue (ARR) in fiscal 2026, marking a 200% year-over-year increase.
While legacy SaaS providers reshape their platforms, companies like Microsoft MSFT and CrowdStrike CRWD demonstrate that businesses owning essential infrastructure and security layers are capturing the bulk of current AI enterprise spending.
Microsoft’s AI business surpassed an annual revenue run rate of $37 billion, registering growth of 123% year over year in the third quarter of fiscal 2026. CrowdStrike boasts the largest dataset of AI agent behavior in cybersecurity, monitoring over 1,800 distinct AI applications.
The Outlook
The long-term outlook for the software industry remains incredibly bright as the market transitions from "building the AI factory" to "running the factory" via applications. Gartner forecasts that global spending on AI software will grow 60% year over year to $453.2 billion in 2026, before rising further to $638.4 billion in 2027. This growth is expected to provide a powerful multi-year revenue tailwind for the software sector.
Software ETFs to Buy
Against the current backdrop, navigating the software sector's growth story through individual stock selection might be difficult. The AI transformation is affecting a wide range of sub-sectors, from cloud infrastructure and cybersecurity to enterprise workflow software and data management.
Given this complexity, holding a software ETF is a more prudent and lower-risk strategy for most investors. ETFs provide instant diversification across the entire software ecosystem and reduce the company-specific risks associated with owning a single stock.
Thus, investors ready to embrace this "beyond hardware" phase of the AI boom may add the following ETFs to their portfolios to gain targeted exposure to the software sector’s growth:
iShares Expanded Tech-Software Sector ETF IGV
This fund, with net assets worth $13.97 billion, offers exposure to 111 software, cloud, and digital media companies. Oracle holds the first position in this fund, with 9.32% weightage. MSFT holds the third spot in this fund (7.80% weightage), CRWD holds the fifth spot (6.46%) and CRM holds the sixth spot (5.63%).
The fund charges 39 basis points (bps) as fees and holds a Zacks ETF Rank #2 (Buy). IGV has gained 8.3% over the past three months.
Invesco AI and Next Gen Software ETF IGPT
This fund, with a market value worth $1.24 billion, offers exposure to 100 companies with significant exposure to technologies or products that contribute to future software development through direct revenues. Micron Technology holds the first position in this fund, with 12.88% weightage. SNOW holds the 18th spot in this fund, with 1.35% weightage.
The fund charges 56 bps as fees and sports a Zacks ETF Rank #1 (Strong Buy). IGPT has surged 59.7% over the past three months.
State Street SPDR S&P Software & Services ETF XSW
This fund, with assets under management worth $395 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 1.82% weightage. CRWD holds the 20th spot in this fund, with 1.05% weightage.
The fund charges 35 bps as fees and carries a Zacks ETF Rank #2. XSW has gained 11.6% over the past three months.
Boost Your Portfolio with Our Top ETF Insights
Zacks' exclusive Fund Newsletter delivers actionable information, top news and analysis, as well as top-performing ETFs, straight to your inbox every week.
Don’t miss out on this valuable resource. It’s free!
Get it now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Salesforce, Inc. (CRM): Free Stock Analysis Report
Snowflake Inc. (SNOW): 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
CrowdStrike (CRWD): 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).