Cybersecurity and enterprise software stocks have been the market’s dogs in 2026 as fears that AI will wipe out a wide range of businesses in the enterprise sector dominate the narrative. But they ended a brutal losing streak last week, membership in the broader market rally that saw all losses from the US-Iran war recouped by the Dow Jones Industrial Average And S&P500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, CEO of Amplify ETF, said on this week’s “ETF Edge.”
These weren’t just niche names in cybersecurity. Take Microsoftfor example, which was recently down almost 20% for the year. Its shares jumped 13% last week.
One of the main factors behind the fall in software stocks has been investor turnover in the technology sector. AI Infrastructure And semiconductors and a few other names in the large-cap tech sector, Magoon said, and because cybersecurity stocks and ETFs are heavily weighted toward software companies, they’ve been left behind even as those companies continue to grow on a fundamental basis.
But Wall Street has now become more optimistic with stocks at lower levels. Jefferies technology analyst Brent Thill said last week that the the worst may be over for software stocks. “I think that concept that software is deadand then Anthropic and OpenAI are going to kill the entire industry, is just overkill,” he said Wednesday on CNBC’s “Squawk Box.”
“The Big Short Investor” Michael Burry written in a substack posted Wednesday that he was becoming bullish on software stocks after the recent selloff. “Software stocks remain attractive due to extreme declines accelerated last week, resulting from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt”, he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the start of the year, with main titles including Palo Alto Networks, Fortinet, Akamai Technologies And Crowd strike. But BUG was up 12% last week. The NASDAQ First Trust Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% last week.
Piper Sandler analyst Rob Owens reiterated Palo Alto Networks’ overweight, which helped the stock climb 7% — it’s now down about 6% for the year. Its peers have seen similar moves, including CrowdStrike.
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Performance of the Global X cybersecurity ETF versus the S&P 500 over the past year.
Magoon said expectations may have become too high for cybersecurity and that with a crowd effect among investors, strong results were not enough to drive stocks higher. But the sector’s decline and then rise in 2026 also reminds us that when stocks fall sharply over a short period of time, an opportunity may present itself.
“Once you’re down more than 10% in some of these subsectors, you start to see the contrarians start to say, ‘Well, maybe I’ll take a look,'” Magoon said.
He said AI adds both opportunity and uncertainty in the cybersecurity equation, increasing demand but also introducing new competition. But he added: “I think the dip is a good thing to buy in an AI-driven world,” particularly because the risks to businesses could lead to more mergers and acquisitions in cyber names, which would benefit stocks.
For now, investors might look for opportunities on the sidelines rather than rushing into washed-up tech stocks. “I think investors are going to continue to be underweight software,” Thill said.
But Magoon advises investors to remember to at least keep an eye on market niches in the event of a sharp downturn. “The best performers are often the least bought and do their best over the next 12 months, rather than accumulating money at the end of the game,” he said.
While this mindset may have worked against the latest cybersecurity and enterprise software investors in mid-2025 when negative sentiment began to build, at least for now, it has started to work again for the sector’s stocks.
At the same time, this year’s biggest gainer is also a good example of what an extended trade in a bullish or bearish direction can be. Last year, institutional ownership of the energy sector was at its lowest level in several years, Magoon said, referring to Bank of America data. “An opposite sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of dip stocks must face the risk of a potentially deeper market decline coming in 2026. Indeed, midterm election years have historically been marked by large declines. “If you think the situation is bad right now, the situation could be much worse,” Magoon said. But he added that this data also presents a positive side for the patient investor. The market had very good 12-month returns after the midterm elections ended. So for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stay there.”
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