What disruption? Deutsche Bank turns bullish on software stocks, saying AI fears have peaked.

• Deutsche Bank strategists say the market's AI fears have peaked.
• The firm upgraded software stocks to overweight and lifted its tech sector rating.
• Solid earnings from software firms don't support fears that AI will upend the industry.

Deutsche Bank said reality doesn't align with investors' fears that AI will eat software.

Strategists at the bank issued a bullish call on software stocks on Wednesday after weeks of worry that AI will drive a shakeout in the corner of the tech sector. They indicated investors are undervaluing top software stocks.

"Software companies are trading at historically low premiums versus the market," they wrote.

Despite valuations signaling that the sector will underperform the broader market, the analysts said the reality is different. "Facts are telling a different story," the bank said.

European equities strategists Maximilian Uleer, Carolin Raab, and Francesca Mazzali said that fears about AI have peaked.

The strategists boosted their outlook for the space and are now "overweight" software stocks and neutral on tech, an upgrade from the "underweight" rating they previously had for the sector.

The iShares Expanded Tech-Software Sector ETF has fallen 20% since the start of 2026, while the larger tech sector has dipped nearly 4%.

Intuit, Salesforce, ServiceNow, and Adobe were some of the hardest hit stocks in the space. Some of these names have made it stock pick lists from firms like Jefferies, JPMorgan, Morningstar, and Wedbush.

Despite the dramatic downturn in software stock valuation, Deutsche points out that they do not know of a single software company that expects AI to have a negative effect on revenue this year.

"The narrative has focused on the negative effects on Software while ignoring the positive effects of lower programming costs and potential product improvements due to AI," the strategists said.

Deutsche reported that prior sharp sell-offs were associated with plunging growth in one to two quarters. They flagged software earnings falling flat in 2022 and turning negative in 2008 and 2001.

The strategists added that US software companies' earnings grew 29% year-over-year in the fourth quarter of 2025, and earnings expectations for 2026 are being revised higher. That's a bullish signal for what's to come in the space, despite lingering AI fears.