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 artificial intelligence (AI) area, which can lead to pricing pressure that could impact margins.

However, the industry's evolving trends point to momentum ahead. The industry participants are positioned for long-term 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 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) , ACI Worldwide (ACIW Quick QuoteACIW - 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 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 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 #165, which places it in the bottom 33% of more than 247 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 12.1% over this period against the S&P 500 and the broader sector’s increases of 20.3% and 26.7%, 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 22.95X compared with the S&P 500’s 20.32X. It is also up from the sector’s forward-12-month P/E of 20.66X.

In the past five years, the industry has traded as high as 35.33X and as low as 18.97X, with the median being 30.13X, as the chart below shows.

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

Forward 12-Month P/E Ratio

 

3 Software Stocks to Add to Watchlist

ACI Worldwide develops software solutions that enable intelligent payments orchestration for banks, merchants and billers. 

On the second-quarter 2026 earnings call, management noted a significant opportunity as financial institutions deal with complex payment environments, including more payment types and rails, greater real-time payment adoption, increasing fraud threats and dynamic regulations. This is pushing customers to transform legacy infrastructure.

ACI Worldwide delivered second-quarter revenues of $430 million, up 7% year over year, while adjusted EBITDA increased 12% to $91 million. The Payment Software segment was a key contributor, with revenues up 9% to $196 million. Issuing and acquiring grew 33% in constant currency, supported by large expansions with renewing customers.

AI is becoming another differentiator across ACI's portfolio. The company has embedded context-dependent intelligent routing and scoring capability within Connetic and has added tools that accelerate standard API deployment and customer implementation within its Speedpay One solution.

ACI raised its 2026 guidance following the strong first-half performance. Revenues are now expected at $1.895-$1.925 billion, up from the prior $1.89-$1.92 billion range, while adjusted EBITDA guidance increased to $545-$560 million from $540-$555 million.

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

The Zacks Consensus Estimate for the company’s 2026 earnings is pegged at $3.50 per share, indicating year-over-year growth of 23.7%. The stock has declined 8.1% in the past year.

Price and Consensus: ACIW

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 cloud infrastructure businesses are fast gaining momentum. On the last earnings call, the company highlighted that the multicloud database opportunity was in the early stages. Continued expansion into new regions and partnerships with other cloud providers should support growth. 

Oracle delivered fourth-quarter revenues of $19.2 billion, rising 21% year over year. Cloud infrastructure revenues surged 93% year over year, driven by demand for AI workloads and database services. Cloud applications revenues increased 10% to $4.1 billion, while SaaS deferred revenues grew 16%. Oracle’s cloud database business grew 29%, with multicloud revenues up 404%, while bookings jumped 325% year over year. 

Oracle’s remaining performance obligations (“RPO”) stood at an impressive $638 billion, underscoring strong forward visibility. The massive RPO backlog, coupled with demand across AI infrastructure and cloud services, provides a clear runway for sustained growth.

For fiscal 2027, management reiterated its revenue target of $90 billion and raised non-GAAP earnings per share guidance to $8.05, representing 18% constant-currency growth. 

ORCL currently holds a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the company’s fiscal 2027 earnings is pegged at $8.03 per share, indicating year-over-year growth of 5.2%. The stock has declined 38.6% in the past year.

Price and Consensus: ORCL

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. 

Strength in data platform products as clients increasingly use enterprise data to provide context for AI applications bodes well. Progress' data and content business represents more than two-thirds of the total business, making this an increasingly important source of potential long-term growth. Progress is also benefiting from increasing demand for infrastructure management and content-driven workflow automation solutions.

Progress is embedding AI capabilities across its products, enabling customers to improve business outcomes. It recently unveiled Chef Enterprise Management for NVIDIA DGX Spark, expanding Chef's infrastructure-management capabilities into AI computing environments.  

Fiscal second-quarter revenues increased 7% year over year to approximately $253 million. ARR reached $868 million, representing 2% year-over-year growth in constant currency, while net retention stood at 100%.

For fiscal 2026, Progress raised its revenue forecast to $990 million to slightly more than $1 billion, implying growth of approximately 1-2.5% over fiscal 2025.

PRGS currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the company’s fiscal 2026 earnings is pegged at $6.16 per share, indicating year-over-year growth of 7.7%. The stock has declined 7.6% in the past year.

Price and Consensus: PRGS