Palantir, Snowflake lead software sector as Goldman Sachs sees AI gains

Investing.com - Software companies posted healthy fundamentals in the second quarter of 2026, with median annual recurring revenue growth of 21.3% and profitability reaching near-record levels, according to a Goldman Sachs analysis released Wednesday. The firm tracked 40 software companies and found that 20 accelerated year-over-year ARR growth compared with 19 in the first quarter, despite facing a roughly 1.5-point more difficult comparison.

Revenue performance exceeded expectations, with the median software company beating second-quarter estimates by 2.4%, up from 2.1% in the first quarter and above the trailing three-year average of approximately 2.1%. Earnings per share beats improved to 14.2% from 11.1% in the prior quarter. Calendar year 2026 revenue estimates moved higher across all four software categories tracked by Goldman Sachs, with Infrastructure and Platform software leading at 3.0%, followed by Vertical software at 0.7%, Security at 0.7%, and Application software at 0.3%.

Profitability metrics continued to strengthen across the sector. Median gross margins increased to 78.4% from 78.2% in the first quarter, above the six-year average of 77.8%. Median EBIT margins expanded by approximately 110 basis points sequentially to 24.4%, approaching the highest levels in Goldman Sachs' dataset. Median cost of customer acquisition increased modestly to 2.12x from 2.06x as slower ARR growth outweighed moderation in sales and marketing spending growth, which declined to 13.2% from 14.3%.

Within Infrastructure and Platform software, Palantir (NYSE: PLTR) led upward revisions with a 6.1% increase, driven by 150% year-over-year growth in its U.S. Commercial business and 90% growth in U.S. Government. Snowflake (NYSE: SNOW) saw a 3.4% revision as its CoCo product reached 60% customer penetration, up from 50% in the prior quarter. DigitalOcean (NYSE: DOCN) received a 3.2% revision as AI compute strength continued, with the company realizing high-teens millions of dollars per megawatt on some workloads compared with $13 million per megawatt disclosed in March 2026.

CrowdStrike (NASDAQ: CRWD) posted record net new ARR of $333 million in its second fiscal quarter of 2027, up 51% year over year, with management raising its fiscal 2027 net new ARR growth outlook to 34% at the midpoint. MongoDB (NASDAQ: MDB) grew its customer base by approximately 2,900 net new customers and expanded its base of customers with more than $100,000 in ARR by 17% year over year to nearly 3,000. Palo Alto Networks (NASDAQ: PANW) reported revenue growth acceleration to 34% year over year in its fourth fiscal quarter of 2026, with approximately 220 net new platformizations and net retention above 120% for platformized customers.

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