Uncertainty prevailing over global macroeconomic conditions continues to be concerning for the Zacks Computer Software industry participants, as this might upend IT budgets. The software industry remains highly competitive, particularly in AI areas, which can lead to pricing pressure that could impact margins.

Despite these headwinds, the industry's evolving trends point to momentum ahead. The industry participants are positioned for solid growth as businesses around the globe accelerate their digital transformation initiatives. The ongoing migration to cloud and the widespread adoption of Software-as-a-Service (SaaS) models continue to provide recurring revenue visibility for vendors while giving customers the scalability, flexibility and cost efficiency they increasingly demand.

At the same time, rapid advances in artificial intelligence (“AI”) and machine learning (“ML”) are reshaping the industry. The cutting-edge technologies are being swiftly integrated into enterprise and consumer applications. Software vendors are increasingly embedding generative AI into productivity tools, customer service platforms and enterprise resource planning systems. Per a Precedence Research report, the global software market is expected to witness a CAGR of 11.6% from 2026 to 2035 to reach 2,468.93 billion. These trends augur well for industry participants, such as Oracle Corporation (ORCL Quick QuoteORCL - Free Report) , Intuit (INTU Quick QuoteINTU - Free Report) and Progress Software Corporation (PRGS Quick QuotePRGS - Free Report) . 

Industry Description

The Zacks Computer Software industry includes companies that provide software applications related to AI, cloud computing, electronic design automation (primarily for semiconductor and electronics industries), digital media and marketing, customer relationship management, on-premises and cloud-based database management, accounting and tax purposes, human capital management, cybersecurity and application performance monitoring and a cloud-based enterprise communications platform. Some companies develop and market simulation software (like computer-aided design or CAD, 3D modeling, product lifecycle management or PLM, data orchestration and experience creation), which engineers, designers and researchers use across various industries like architecture, engineering and construction, product design, manufacturing and digital media.

3 Trends Shaping the Future of the Software Industry

Higher Spending on AI and Cloud: Cloud computing will continue to be a dominant force in the software industry, with businesses adopting hybrid and multi-cloud environments to meet their growing needs for flexibility and scalability. Cloud offers a flexible and cost-effective platform for developing and testing applications. The deployment time is also shorter compared with legacy systems. SaaS companies are expected to register strong top-line growth on a higher percentage of recurring revenues, subscription gross margin and a lower churn rate. 

However, AI, Generative AI, in particular, is now becoming the defining force behind the next chapter of software evolution. The continued investment in AI, big data and analytics, and the ongoing adoption of SaaS open up opportunities for these players. Going forward, AI and ML tech are expected to be widely integrated into the software tools. This increasing demand for AI-powered software tools for automation, personalization, predictive analytics and decision-making augurs well. 

According to a report from Gartner, worldwide AI spending is projected to reach $2.59 trillion in 2026, calling for an increase of 47% from 2025 levels. Spending on AI-related software continues to rise, according to Gartner, with the estimated spend at $453.2 billion, up from $282.9 billion in 2025. 

Increased Cybersecurity Focus: The increasing need to secure cloud platforms amid growing cyberattacks and hacking incidents drives demand for cybersecurity software. As software becomes more interconnected, cloud-native and AI-powered, it is driving the demand for performance management monitoring tools that are scalable and suitable for cloud-based environments. Zero-trust architectures, identity and access management and real-time threat detection powered by AI are becoming essential features of modern software platforms. 

Macroeconomic Headwinds a Concern: Global macroeconomic weakness and volatile supply-chain dynamics are persistent concerns. Though tariff troubles are unlikely to affect the software industry directly, higher tariffs on hardware would lead to higher costs. This would affect the software pricing as well. Inflation could affect spending across small and medium-sized businesses globally. The uncertainty in business visibility could dent the industry’s performance in the near term. 

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Computer Software industry is housed within the broader Zacks Computer and Technology sector. This carries a Zacks Industry Rank #152, which places it in the bottom 38% of more than 244 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Before we present a few stocks you may want to consider for your portfolio, given their bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms the Sector and the S&P 500

The Zacks Computer Software industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index in the past year.

The industry has lost 12.3% over this period against the S&P 500 and the broader sector’s increase of 31.5% and 52.2%, respectively.

One-Year Price Performance

 

Industry's Current Valuation

Based on the forward 12-month P/E, a commonly used multiple for valuing software companies, we see that the industry is currently trading at 21.86X compared with the S&P 500’s 22.18X. It is also down from the sector’s forward-12-month P/E of 25.96X.

In the past five years, the industry has traded as high as 35.33X and as low as 20.39X, with the median being 30.28X, as the chart below shows.

Forward 12-Month Price-to-Earnings (P/E) Ratio

Forward 12-Month P/E Ratio

 

3 Software Stocks to Boost Portfolio Returns

Oracle is one of the well-known names in the tech space. The company’s operations span from enterprise software to cloud services and database management systems. 

Oracle’s database and infrastructure businesses are fast gaining momentum. In the last reported quarter, multicloud database revenues surged 531% year over year, while AI infrastructure revenues climbed 243%. These hypergrowth segments highlight Oracle’s success in monetizing AI demand and expanding its cloud footprint across hyperscalers.

Oracle’s partnerships with Microsoft, Google and Amazon are proving transformative. By running its database across all major clouds, Oracle is tapping into a huge installed base of customers who want flexibility without affecting performance.

Oracle’s remaining performance obligations (“RPO”) stood at an impressive $553 billion, underscoring strong forward visibility. The massive RPO backlog, coupled with demand exceeding supply in AI infrastructure, provides a clear runway for sustained growth.

For fiscal 2026, management reiterated its revenue target of $67 billion and capex of $50 billion. For fiscal 2027, Oracle raised its revenue guidance to $90 billion.

ORCL currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

The Zacks Consensus Estimate for the company’s fiscal 2026 earnings is pegged at $7.46 per share, indicating year-over-year growth of 23.7%. The stock has gained 17.2% in the past year. 

Price and Consensus: ORCL

Intuit is a business and financial software company that develops and sells financial, accounting and tax preparation software and related services for small businesses, consumers and accounting professionals globally.

The company’s core products, QuickBooks and TurboTax, enhance its position in the financial and tax management market. TurboTax Live is to the company’s push into the $37 billion assisted tax market. Intuit expects TurboTax Live customers to grow 38% and revenues to increase 36% for the full year, significantly above its long-term growth target. As a result, TurboTax Live is expected to contribute more than half of total TurboTax revenues. 

Within the Global Business Solutions segment, Intuit continued to see strong momentum, with revenues growing 15% in the last reported quarter and online ecosystem revenues increasing 19%. Total online payment volume increased 30%, reflecting strong adoption of payments and Bill Pay. 

The company is implementing AI across its operations to automate workflows, generate insights and improve customer outcomes.

Intuit raised its fiscal 2026 guidance, projecting revenues between $21.341 billion and $21.374 billion, representing approximately 13% to 14% growth. 

INTU currently carries a Zacks Rank #2. The Zacks Consensus Estimate for the company’s fiscal 2026 earnings is pegged at $23.31 per share, indicating year-over-year growth of 15.7%. The stock has declined 59.4% in the past year. 

Price and Consensus: INTU

Progress Software is benefiting from strength in its product portfolio, comprising offerings such as OpenEdge, WhatsUp Gold, ShareFile, Loadmaster, MOVEit and DevTools. The company’s platform aids in developing and deploying mission-critical business applications. 

In the last reported quarter, revenues reached $248 million, up 4% year over year, primarily driven by OpenEdge. Net retention rate of 99% reflects strong customer loyalty and stickiness.

Progress is embedding AI capabilities across its products, enabling customers to improve business outcomes. M&A also remains a core pillar of growth. The integration of ShareFile has strengthened the company’s SaaS capabilities, expanded recurring revenues and enhanced profitability and cash flow, noted management. Progress continues to pursue disciplined, high-return acquisitions. 

Cash flow generation is expected to remain robust, with adjusted free cash flow forecasted between $263 million and $275 million. This supports the company’s capital allocation strategy, which prioritizes debt reduction, opportunistic share repurchases and strategic M&A. The company plans to repay $250 million in debt during the year, further improving its leverage profile.

PRGS currently carries a Zacks Rank #2. The Zacks Consensus Estimate for the company’s fiscal 2026 earnings is pegged at $5.98 per share, indicating year-over-year growth of 4.6%. The stock has declined 51.3% in the past year.

Price and Consensus: PRGS