Citi: Software rally reduces AI terminal-risk fears

Fatima Boolani, Citi’s co-head of U.S. equity research, said on Aug. 7, 2026 that a rebound in software shares is being reinforced by improving company results, which she said are softening fears that AI models could create a “terminal” revenue risk for software firms.

Boolani described the move as fundamentally tied to earnings, pointing to recent reports that, in her view, indicate durable demand and sustained pricing power across major software franchises. She said the latest results are making it harder to argue that AI will quickly erode long-term cash flows across the sector.

Citi frames the shift as earnings-driven

According to Boolani, the reassessment is rooted in better-than-expected revenue and margin trajectories at several large software companies. She said those trajectories have undercut the idea that AI disruption would immediately compress the sector’s longer-run financial profile.

She tied the change directly to how investors set valuations. Boolani said models that applied a “terminal-risk” haircut to growth assumptions had pressured sector multiples, weighing on share prices and benchmark software indices.

Why the “terminal-risk” input matters for valuations

Boolani said that as those terminal-risk assumptions ease, the conditions for multiple expansion become more straightforward. She linked that dynamic to gains in benchmark software indices and to potential performance effects for managers with heavy software weightings.

In her comments, she positioned the rally less as a sentiment shift and more as a response to observable company-level execution, including the durability of demand and the ability to hold pricing.

What investors are watching through September 30

Boolani said investors will focus on whether quarterly results through August continue to support the same pattern of resilience. She also pointed to the cadence of AI-related product monetization as a key variable that could validate, or challenge, the emerging narrative.

She said a clearer signal on durable revenue outcomes should be visible by September 30, 2026. In her view, that timing matters because it may influence portfolio reweighting decisions, which she said are likely to accelerate once investors have more confirmation on revenue durability.

For now, Boolani’s assessment implies that the major uncertainty is not whether AI is relevant to software business models, but whether the sector’s reported results continue to justify reducing the terminal-risk discount embedded in valuations.