Software Stocks Outperform Since Iran Conflict Began: Deutsche Bank Upgrades Sector to Overweight

This analysis examines the remarkable transformation of software stocks from market laggards to outperformers since the Iran conflict began on February 28, 2026. According to Deutsche Bank Research, some of the weakest areas of the market in early 2026 have experienced a dramatic turnaround, with software stocks emerging as unexpected winners amid escalating geopolitical tensions [1].

The Iran conflict commenced on February 28, 2026, when the US and Israel launched major military strikes on Iran [2]. The conflict has escalated significantly, with the Strait of Hormuz being effectively closed since Iran declared it shut following attacks. This development has created substantial disruptions in global energy supplies, with oil prices surging past $100 per barrel and gasoline prices rising 17% since the war began [3][4].

This geopolitical crisis has fundamentally altered market leadership dynamics. The energy sector has predictably led market gains (+1.31% as of March 17, 2026), while the broader S&P 500 experienced significant volatility, falling to new lows for the year in mid-March 2026 [0]. However, within the technology sector, a surprising rotation has occurred that defies traditional market expectations.

The software sector has experienced an unprecedented turnaround since the Iran conflict began. The

rose over a six-day span, while the VanEck Semiconductor ETF (SMH) gained only +5.3% [5]. This represents the over any six-session period, marking a historic shift in sector leadership dynamics [5].

The

climbed during the first week of the conflict, significantly outperforming the S&P 500 which was essentially flat during the same period [6]. This divergence highlights the market’s rotation toward defensive software positions amid geopolitical uncertainty.

Particularly strong performance has been observed in cybersecurity stocks, driven by heightened demand for digital security amid escalating geopolitical tensions:

Stock	Performance Since Conflict Began	Forward P/E
Cloudflare (NET)	+7.9%	146.3
Rapid7 (RPD)	+7.4%	4.2
A10 Networks (ATEN)	+7.0%	19.5
Palo Alto Networks (PANW)	+6.9%	40.3
CrowdStrike (CRWD)	+6.8%	77.0
Zscaler (ZS)	+6.6%	34.9
Qualys (QLYS)	+6.4%	12.9
Tenable Holdings (TENB)	+5.7%	10.3
Fortinet (FTNT)	+5.3%	26.3
Radware (RDWR)	+4.6%	20.9

Average gain: approximately +6.2% across cybersecurity holdings [6]

The concentration of gains in cybersecurity reflects investor concerns about potential cyberattacks from Iran-affiliated actors and increased digital warfare risks associated with the ongoing conflict.

emerged as a standout performer, rallying during the Iran conflict—its best week since August 2025. The stock closed at $157.16 on March 6, 2026, leading analysts to raise price targets: Rosenblatt to $200 (from $150) and Piper Sandler to $230 [7]. This performance reflects Palantir’s unique positioning with approximately , positioning the company beneficially from increased defense spending [7].

Deutsche Bank Research has upgraded both

, marking a significant strategic pivot [8]. This upgrade reflects the bank’s recognition of software stocks’ transformation from underperformers to market leaders since the Iran conflict began. The upgrade represents a notable shift from earlier 2026 positioning when software stocks faced pressure due to AI disruption fears [5].

The data reveals a striking reversal where software stocks—historically laggards compared to semiconductor stocks—have dramatically outperformed. This 14.6-point outperformance gap over six sessions is unprecedented in market history [5]. However, analysts caution that this may represent a “blip” rather than a sustainable structural shift, as longer-term software underperformance relative to chips persists.

Several factors are driving the software sector rally:

1. Cybersecurity demand surge
   : Heightened threat of digital warfare from Iran-affiliated actors has boosted spending on security solutions [6]
2. Defense spending expansion
   : Government-focused software companies (like Palantir) benefit from increased military budgets [7]
3. Risk rotation
   : Investors shifting from hardware (chips) to software as relatively safer plays during uncertainty
4. Valuation compression opportunity
   : Some software names (like Rapid7 at 4.2x forward P/E) appear undervalued relative to their growth profiles

The software rally connects multiple market domains:

• Geopolitical risk
  →
  Defense spending
  →
  Government software contractors
• Geopolitical tension
  →
  Cybersecurity threat perception
  →
  Security software demand
• Energy crisis
  →
  Market volatility
  →
  Defensive positioning
  →
  Software sector rotation

1. Geopolitical Reversal Risk
   : If the Iran conflict de-escalates, cybersecurity and defense-related software stocks could see their risk premiums collapse rapidly

2. Valuation Risk
   : High forward P/E ratios (CrowdStrike at 77x, Cloudflare at 146.3x) leave limited margin for error and may not be justified if the geopolitical risk premium dissipates [6]

3. Sustainability Concerns
   : The 14.6-point outperformance was characterized as a “blip” in longer-term analysis—decision-makers should assess whether this represents sustainable momentum or temporary geopolitical hedging [5]

4. Sector Concentration Risk
   : The rally is concentrated in cybersecurity and government-focused software; broader software sector remains mixed

5. Oil Price Sensitivity
   : With the Strait of Hormuz closure threatening approximately 20% of global oil supplies, any de-escalation could significantly impact energy prices and broader market sentiment [4]

1. Cybersecurity tailwinds
   : Continued geopolitical tension suggests elevated demand for digital security infrastructure
2. Government contract flow
   : Increased defense budgets favor companies like Palantir with substantial government exposure
3. Valuation discrepancies
   : Some cybersecurity stocks (Rapid7 at 4.2x P/E, Tenable at 10.3x) trade at compelling valuations relative to growth [6]
4. Sector upgrade momentum
   : Deutsche Bank’s overweight rating provides institutional validation for the software sector [8]

The analysis presents a complex picture of market dynamics driven by geopolitical forces:

• Software stocks have undergone a historic turnaround, with IGV outperforming SMH by 14.6 percentage points over six sessions—the largest such gap on record [5]
• Cybersecurity stocks have been the primary beneficiaries, averaging +6.2% gains since the conflict began, driven by heightened digital threat perception [6]
• Palantir’s +15% weekly rally reflects strong positioning in government contracts, with approximately 60% of revenue from government sources [7]
• Deutsche Bank has upgraded software to overweight in both US and European markets, signaling institutional recognition of the sector’s transformation [8]
• Oil prices exceeding $100/barrel and the Strait of Hormuz closure underscore the significant geopolitical risk premium currently embedded in markets [3][4]

The current rally reflects genuine geopolitical drivers, but the characterization as a “blip” by analysts suggests caution about sustainability. Elevated valuations in many cybersecurity names leave limited room for error, and any de-escalation in the Iran conflict could rapidly reverse recent gains.