Investor Sentiment Is Dragging Down the Software Sector—and It’s Not Just in the US

On the Feb. 5, 2026, bonus episode of The Morning Filter podcast, host Susan Dziubinski talked with Morningstar Chief Europe Market Strategist Michael Field about how artificial intelligence fears are affecting software stock performance, why Field still likes the tech sector for 2026, and one top software stock pick.

Why European Software Stocks Have Struggled Since 2025

Susan Dziubinski: All right. Another sector you like is technology. Now that might surprise some, given how well US tech stocks performed in 2025. How did you non-US tech stocks perform in 2025?

Michael Field: So it’s definitely kind of a regional thing, as you pointed out, but it’s also a difference between what the companies do, right? And that the easiest way to split that out for people to understand is hardware and software. And if you look at what’s done well in the US, it’s very much the hardware companies, right? The Mag Seven, companies that are talking about chips and AI, and anything related to that, have done astonishingly well over the last number of years. But a lot of those software companies have been left behind. And that’s not a phenomenon that’s just existent in Europe. If you look at the US, some of the big names, Salesforce CRM, Palantir PLTR, even Oracle ORCL, for example, if you check out their share prices, it hasn’t been a pretty picture as well, particularly over the last six or 12 months.

In Europe, what we’re seeing is a lot of software companies have really struggled as a result. And what that kind of boils down to, if you will, is just investor lack of knowledge and investor sentiment being negative. And the feeling that they don’t know exactly which of these software companies and which of these products could be disrupted by AI. So they’re tarring everything with the same kind of negative brush, and that’s really dragged those share prices down.

Why We Still Like Tech for 2026

Dziubinski: So then is it, is it a valuation story? Is that why you like tech for 2026?

Field: Certainly, valuation is one part of it. If I look in Europe, it’s one of the cheapest sectors in Europe, and it’s really hard to ignore that. But it’s also the case that we think a lot of these companies are very moaty still, that we think, when it comes to disruption, they’re very unlikely to be disrupted. So it’s more, perhaps, that the fundamental reasons behind the negativity, we believe, are wrong, which means that you could see a correction in those share prices sooner rather than later, is our hope, certainly, anyway.

Top International Software Stock Pick

Dziubinski: Well, let’s wrap up today’s episode, just as we do every episode of The Morning Filter, with a few stock picks. One pick from each of the sectors that you just talked about, so we’ll start off with tech, where your pick is SAP SAP. Now, this stock fell pretty hard after earnings. So what happened?

Field: Ultimately again, it’s that uncertainty that we mentioned, right? SAP is now a 5-star name. A wide-moat stock, as are all three companies that we’re going to discuss today. But generally speaking, growth seems to be still quite high within the company. If you’re not familiar with it, one of the things they’re specializing is outsourcing of cloud technologies, right? Software as a service for corporate clients. And there’s obviously been a structural tailwind of companies physically outsourcing software to more cloud-based software. And they’ve been at the forefront of that. I think, you know, there’s some negatives from an operational perspective. They haven’t been as efficient as they could have been over the last number of years. And I think that’s certainly proving a drag on margins. But certainly, the growth seems to be still there in the company, but it hasn’t been enough to kind of remove those lingering doubts that investors have over that AI potential disruption that we spoke about.

Why SAP Stock Is a Buy

Dziubinski: Now you mentioned a lot of these stocks are being tarred with the same brush. So, given that, why, specifically, is SAP your pick among all of them?

Field: Certainly, it’s one of the biggest in Europe anyway, and that’s a big selling feature, the kind of the pride of the German stock exchange, if you will, as well. But also, I think the degree to which it’s been hit, you mentioned the share price there, and it’s not often you see a large tech name of this size with 30% or more upside. I think that’s kind of one of the obvious things that strikes my mind when I think of SAP at the moment.

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