As we wrap up the quarter, BMO is pleased to share the latest edition of our Software Market Update. In addition to an overview of key macro and sector developments, this quarter’s update also includes a deep dive into AI-related disclosures and KPIs across public software companies.
Global markets are increasingly characterized by a constructive shift in sentiment, with equities stabilizing and oil prices easing following a tentative U.S.–Iran agreement to extend their ceasefire and reopen the Strait of Hormuz, restoring confidence in the stability of global crude flows. Negotiations are expected to continue over the next 60 days, as anticipation builds on key issues within the final agreement including Iran’s nuclear program and related sanctions.
Central banks remain cautious in navigating an uncertain growth and inflation trade-off. At its June 17 meeting, the Federal Reserve held policy rates unchanged at 3.50% to 3.75%, highlighting resilient productivity and capital investment alongside persistent inflation pressures, driven by supply-side factors. Policymakers continue to signal the potential for modest additional tightening later this year, reflecting concern that inflation may remain above the 2% target. In Europe, the European Central Bank has resumed tightening, positioning itself among the first major central banks in the current cycle to raise rates in response to persistent inflationary pressures.
The software indices have experienced relief since the beginning of the year, with the IGV index up 10.0% since the start of the war on February 28 and up 20.1% since the trough on April 10th. Shares of companies perceived as AI beneficiaries have also risen, though performance has been highly volatile. These stocks have experienced sharp swings in recent weeks as investors debate whether valuations have expanded too quickly amid AI-driven enthusiasm, with price movements at times reversing rapidly intra-day.
The software M&A market has shown early signs of recovery since late 2025 with aggregate deal value reaching >$410bn year-to-date. Activity has been driven primarily by larger, high-value transactions such as SpaceX’s $250bn acquisition of xAI (Feb-26) and subsequent announced acquisition of Cursor for $60bn (Jun-26). Investment remains concentrated in high-growth segments such as artificial intelligence, cloud infrastructure, and cybersecurity, while legacy software assets continue to face headwinds, and increased regulatory scrutiny alongside evolving diligence requirements is reshaping transaction execution.
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