By Joe Stonor

European software shares surged as investors pulled back from semiconductor companies and turned toward more underloved technology stocks.

Software is the leading sector on the continent Tuesday, with a sector gauge climbing 4.1% in afternoon European trade.

German giant SAP was among the sharpest risers in the segment, gaining 6.2%. French group Capgemini rose 5%, while Dutch software solutions company Wolters Kluwer was up 3.8%. Shares in German group Nemetschek, which provides software for the construction industry, surged 11%.

Software stocks also gained in U.S. premarket trade, with Adobe and Salesforce both rising 2%. ServiceNow surges 5.7% premarket, with the stock set to extend an 8.5% jump in its share price in the last session.

Markets have grown cold on software stocks so far this year as investors weighed the competitive threat posed by artificial-intelligence agents, with the sector selling off sharply in February as a result.

Software's rally this week is fuelled in part by investors pullback from stocks elsewhere in the technology sector, Janus Henderson portfolio manager Ana Chkhikvadze said.

"Investors reduced exposure to year-to-date winners in semiconductors and hardware, resulting in relative outperformance in the broader software space," Chkhikvadze said.

A barometer of semiconductor stocks represented by the iShares Semiconductor ETF fell 7.2% over the last two sessions--its worst two-day streak since April 2025.

Lower valuations following the broad selloff across the sector earlier this year make software stocks more attractive for investors, Tikehau Capital's head of capital markets strategies Raphael Thuin said.

Moreover, software companies are proving themselves to be more proactive in adapting to the threat posed by AI, Thuin said.

SAP launched a new software suite designed to help clients deploy AI agents, embracing a supposed competitor that caused the stock to crater earlier in the year.

The launch demonstrates SAP's strategy pivot to place AI at the heart of its offering, Jefferies analyst Charles Brennan wrote in a note to clients.

"We think the shares offer compelling value," Brennan wrote.

Software stocks remain short of their highs reached earlier this year, and greater volatility ahead is likely for the sector, however, according to Tikehau's Thuin.

"This is not yet an all-clear moment for the industry in our view," Thuin said.

Write to Joe Stonor at josephmichael.stonor@wsj.com

(END) Dow Jones Newswires

May 19, 2026 09:24 ET (13:24 GMT)

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