Growth Software & Cyber: H2’26 outlook flips the script???

Research evidence excerpt

Growth Software & Cyber: H2’26 outlook flips the script???

29 June 2026

U.S. SMID-Cap Software

Growth Software & Cyber: H2'26 outlook flips the script???

Entering the year we likened the setup of software to the children's’ fable “Goldilocks Peter Weed

+1 917 344 8390 and the Three bears” — cybersecurity was HOT on the back of securing AI tailwinds,

peter.weed@bernsteinsg.com application software was NOT as AI disruption narratives abound, and consumption cloud

infrastructure appeared JUST RIGHT for a nice acceleration. But in Q1, growth investors

Luwei Yang told us they preferred to invest where the momentum was: semis, memory, power, etc. This

+1 917 344 8342

luwei.yang@bernsteinsg.com left software touching new lows around the March/early-April timeframe...

Armin Hadavi, CFA ...but by mid-April the sentiment started to turn, and WOW it delivered! While on the

+1 917 344 8463 road with clients April through May we finally heard willingness to invest in software (due

armin.hadavi@bernsteinsg.com to worries the semi/memory trade could peak). Interest was particularly focused in “safer”

categories of consumption cloud infra and cyber. Thus, it didn’t surprise us that both these

software categories saw their valuations go vertical through earnings. While we are off early

June peaks, their 3-month returns are broadly 50-80%+ (Exhibit 6).

Are H2’26 expectations TOO HIGH in cloud consumption infra? For instance, some

bullish investors over the last week or so told us they expect Datadog to reach upper-30%s

to 40%+ YoY growth (vs. 32% in Q1) and next year to remain 30% +/-. We are quite bullish

about Datadog, but that expectation seems stretched. We believe most cloud consumption

revenue comes from an enterprise and SaaS customer base (~85% in Datadog’s case) that