The software industry is at the forefront of the digital transformation of our society and economy. Software is being used in almost every device we interact with daily. Without it, our digital world would simply not be able to run.
This increased importance of software has led to strong stock performance. The iShares Expanded Tech-Software Sector ETF (IGV – Get Rating), which tracks the software industry, is up significantly since its March 2020 low. While the industry has seen considerable volatility, the future still looks bright.
Not only has software revenue accelerated over a recessionary period, information technology (IT) budgets and software spending typically rise in an economic recovery. While many investors have been focused on more cyclical industries as of late, the digital transformation is not slowing down anytime soon, which is great news for software stocks.
What is Software?
In its simplest terms, software is a set of instructions telling a computer to do specific tasks. Anything that runs on a computer, such as its operating system, a video game, or an app, is software.
There are three types of software: system software, application software, and network software. System software controls a computer’s internal function through an operating system. It also can control external devices such as monitors, printers, and storage devices such as USBs.
Application software directs the computer to execute specific commands by the user. That means whoever is using the software is in control of it. This typically includes applications that process data such as a word processor, a spreadsheet, or a database management tool. Network software manages communication between computers on a network.
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