Software stocks have been somewhat fragile in 2025 and will surely be happy to put the year behind them. In a technology group that is the best-performing of the major S&P sectors, software has contributed very little. The iShares Expanded-Tech Software Sector ETF is now 10% off its most recent 52-week high, almost twice the gap of theVanEck Semiconductor ETF.
Looking at the 10 largest holdings, Oracle has been a drag, and is now almost 50% off its peak made just three months ago. ServiceNow plunged 11% Monday and is now approaching its lows from April.
While long-term demand for cloud and AI-driven software remains intact, the near-term question facing investors is whether these stocks are approaching durable bottoms. Let’s look at three names that have a strong influence on how the space acts into year end and 2026.
Microsoft, the only $1 trillion software company, has gained just 5% over the past year. Over the last three-month period the stock has actually declined, by about 7%, and now trades 14% off its most recent 52-week high. Since the start of August, it has put in just seven positive weeks.
Technically, the stock looks vulnerable. As the second-largest holding in the iShares ETF behind Palantir, Microsoft’s next move could dictate the overall flow of software stocks. Right now it is resting on its 200-day simple moving average. If that doesn’t hold, it could see a move toward the very round $400 number, which would fill in a gap from the April 30 session. Bulls can remain vigilant above $464 where a double bottom base could take shape. That pivot would be near the completion of a bearish island reversal following the gap down on Oct. 30. Note the pattern into the bearish filled-in candle from July 31.
Microsoft traded around $476 Wednesday.
If Microsoft can hold its 200-day simple moving average, it may bode well for software stocks.
Datadog, an application software company, is down 11% over the past year. The stock has seen an accelerated move to the downside, dropping four of the last five weeks. All four decliners closed right at the lows of the week. It now trades 31% off its annual peak made on Nov 11.
Round number theory has come into play, with a bearish evening star pattern at $200 completed on Nov. 12. Since then the stock has fallen 20 of the last 24 sessions. The earnings gap from Nov. 6, a gain of more than 23%, was unable to halt the drawdown. The stock is now also below a double-bottom breakout pivot of $152.34 and finds itself in a base that began with a bearish island reversal and gap down on July 8. I want to be patient here and look for an entry near the upward sloping 200 day simple moving average, which is near $135. That line held in August. If it does again, it could commence the right side of a double bottom base. Remain bullish above $125 and look for a move toward $180 in the late first quarter of 2026, which would represent an advance of 27% from current prices.
Datadog traded around $137 Wednesday.
Datadog is approaching its 200 day simple moving average where price held in August.
Snowflake, a cloud-based data platform, is having a nice 2025. The stock is up 43% and showing solid relative strength against the iShares Expanded-Tech Software Sector ETF, which has gained just 6% year to date. That said, it hasn’t been immune to the overall group’s weakness and now trades 21% off its most recent 52-week high.
The stock has fallen seven of the last nine days and five of the last six weeks. This stretch included a bearish engulfing candle the first week of December. Snowflake slumped 9% that week and saw its second-largest weekly volume of the year. It is approaching its 200 day simple moving average, which sits just above the very round $200 number. That level also provides a gap from the Aug. 27 post-earnings session that hasn’t yet been filled. Note the previous earnings-related gap, on May 21, was filled in mid-August. I am looking for a double bottom base to form. This pattern can be traced to a pair of topping candles with two dojis and a spinning top in late October and early November. I think one can enter here after Tuesday’s bullish engulfing candle. Remain bullish above $188 and look for the stock to rebound toward $260 by the second quarter, which would be a gain of 18% from current prices.
Snowflake traded around $216 Wednesday.
Snowflake’s bullish engulfing candle on Tuesday offers good risk/reward.
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