Tariff fears are back, but software doesn’t seem to care. While the S&P 500 (SPY) stumbled this week on renewed worries over President Trump’s August 1 trade deadline, the iShares Tech-Software ETF (IGV) barely flinched, down just 0.2% despite being more volatile than the broader market by design.
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Investors are quietly rotating into software. What’s playing out is a shift in how software is being valued — not for its safety, but for its growing cash flow strength and pricing power. It’s insulated, capital-efficient, and suddenly very tax-advantaged.
Tariffs Don’t Touch Code
Software companies don’t make things, and right now, that’s their superpower. With hardware, manufacturing, and retail players all facing higher input costs under fresh tariff risks, software firms like Okta (OKTA), Autodesk (ADSK), and CrowdStrike (CRWD) are sitting outside the blast radius.
They don’t import heavy parts. They don’t stockpile physical inventory. Their input is talent and time, which tariffs don’t tax.
“If tariffs get slightly worse, software will trade well,” said Rhys Williams of Wayve Capital. And that’s exactly what the market is starting to price in.
The Quiet Catalyst Is a Tax Code Tailwind
Beyond trade headlines, a newly passed tax bill is giving the sector a structural tailwind. The legislation now allows companies to expense R&D immediately rather than amortizing it. That lowers taxable income in the short run and boosts free cash flow, the number that investors actually care about.
Morgan Stanley (MS) crunched the numbers and found that names like Okta, Autodesk, and CrowdStrike could see free-cash-flow margins increase by nearly 10 percentage points by 2026, a massive lift in operational leverage without changing top-line growth.
In a market where profitability still drives multiple expansion, this kind of accounting shift becomes fuel.
FX Is Another Hidden Boost
The 6.7% drop in the U.S. dollar since late April is also working in software’s favor. With global revenue making up a major portion of top-line performance, especially for companies like Microsoft (MSFT) and Oracle (ORCL), every percentage point of currency shift adds incremental upside.
Analyst earnings estimates haven’t fully caught up. That means Q2 could surprise to the upside, not because fundamentals changed, but because the FX math is now in their favor.
Morgan Stanley’s Weiss flagged this explicitly: “FX tailwinds increased in June,” and if they hold, guidance beats are likely.
The Long View Is Still Compelling
Zoom out, and the trend line stays bullish. FactSet (FDS) projects that sales for companies in the software ETF will grow 11.5% annually between 2025 and 2027, with AI investments driving a fresh wave of enterprise software upgrades. Microsoft and Oracle are already positioned, but so are smaller firms riding AI-native demand curves.
Valuation remains elevated — the ETF trades at 38.8 times forward earnings, well above the S&P 500’s 22.2 — but the PEG ratio is only 1.9, just modestly above the market’s 1.6. And historically, software has justified a premium because its growth is not cyclical, it is secular.
When earnings grow consistently, multiple compression becomes less relevant. That is the bet software bulls are making now.
For investors looking to dig deeper into the top software names, TipRanks’ Stock Comparison Tool makes it easy to line up key players like Okta, Autodesk, CrowdStrike, Microsoft, and Oracle across metrics that matter — from analyst ratings and price targets to Smart Scores and valuation multiples.
As the chart shows, Autodesk leads with a perfect Smart Score of 10, while Okta offers the highest upside potential at 27.65%. Despite some recent downside calls on Oracle and CrowdStrike, all five stocks hold Moderate or Strong Buy ratings.
