If you’ve been following TradeSmith Daily this year, you’ll know the software sector has been getting hammered.
The iShares Expanded Tech-Software Sector ETF (IGV) is down nearly 17% since January… and that’s after rallying 11% from its February low.
Investors have fled every company that sells software as a service, out of fear that AI tools like Claude Code will let businesses fulfill those needs in-house.
This is a key reason why the tech-packed Nasdaq 100 index recently entered our Short-Term Health Red Zone. It’s the first sell signal since last March, two weeks before the Liberation Day tariff crash.
But buried among the wreckage, a small pocket of software stocks is actually doing well.
And beyond strong price momentum, they’re showing high-quality, growing fundamentals and the telltale signs of institutional buying.
These two signals point the way…
We found them by combining two TradeSmith tools: Short-Term Health and the Quantum Score.
Short-Term Health tracks the kind of momentum shifts that can last a few weeks to a few months. When a stock’s Short-Term Health is in a Green Zone, it’s a buy. When its momentum starts to break down, it goes Yellow for caution. Red is a sell signal.
The Quantum Score combines fundamental strength – earnings, revenue, and profit margin growth – with a technical read on institutional money flows. Anything above 80 means a highly ranked stock is seeing unusually large inflows from Big Money investors and is a buy.
Used together, these two signals act as confirming filters. A stock has to be in a healthy uptrend and attracting serious institutional capital to make the list. That cuts out a lot of stocks.
Right now, only nine software stocks pass both tests…
Here are the three most recent to flash a new Short-Term Health Green signal, all with Quantum Scores above 80:
- Clear Secure (YOU) makes the biometric identity verification systems used at airports, stadiums, and sports arenas. It scans your fingerprint or iris instead of making you show an ID. Its Quantum Score is 92.6, and it’s up 44.9% over the past month, with its Green signal active for more than two weeks.
- RingCentral (RNG) provides cloud-based business communications – phone, video, messaging, and internet-based tools. Its Quantum Score is 86.9, and it’s up 24.0% over the past month, with its Green signal also more than two weeks old.
- Fastly (FSLY) runs a platform that speeds up and secures how websites and applications load. Its Quantum Score is 85.8, and it’s up 24.8% over the past month, with its Green signal now three weeks old.
None of these stocks are household names. And all three are smaller companies, valued between $2.8 billion and $4.4 billion and operate in software niches that aren’t directly in the crosshairs of the AI disruption.
While the software carnage is real, it isn’t universal. Some software stocks are performing well.
And the ones surviving share two things in common: niche, defensible businesses and institutional money flowing in, despite the broader carnage.
— Michael Salvatore
President Trump just went on record: the AI data center buildout sweeping America is unstoppable. Communities across the country have been pushing back - over rising electricity bills, strained water supplies, and projects landing next door to homes and schools. But the AI buildout isn't slowing down. In fact, Elon Musk's master plan - hidden inside SpaceX - avoids every obstacle. Analyst Rob Spivey says folks who understand what Elon is building - and why - could make a lot of money in the right stocks. Get the name and ticker of the No. 1 stock at the center of it FREE (not Tesla or SpaceX).
Source: TradeSmith
