Software Sector Shows Strong Q2 Growth and Profitability, Goldman Sachs Reports

The software sector demonstrated robust financial health in the second quarter of 2026, posting strong growth in recurring revenue and achieving near-record levels of profitability, according to a new analysis released Wednesday by Goldman Sachs.

The firm's report, which tracked 40 software companies, highlights resilient fundamentals and better-than-expected performance, suggesting continued momentum for the industry.

Sector-Wide Strength in Q2

Across the cohort, median annual recurring revenue (ARR) grew by 21.3% year-over-year, with 20 of the 40 companies accelerating their growth compared to the prior quarter. This performance came despite more difficult year-over-year comparisons, the report noted.

Financial results broadly surpassed analyst expectations. The median company beat Q2 revenue estimates by 2.4%, an improvement from 2.1% in the first quarter. Earnings per share (EPS) beats were even more pronounced, improving to 14.2% above estimates, up from 11.1% in the prior quarter.

Profitability metrics also continued to strengthen. Median gross margins edged up to 78.4%, while median EBIT margins expanded by approximately 110 basis points sequentially to 24.4%, approaching the highest levels in Goldman Sachs' dataset. This indicates strong operational efficiency across the sector.

AI and Platform Leaders Drive Revisions

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Goldman Sachs noted that calendar year 2026 revenue estimates moved higher across all software categories, led by a 3.0% increase for Infrastructure and Platform software. This segment saw standout performance from companies capitalizing on artificial intelligence and platform adoption.

Key performers driving upward revisions included:

• Palantir (PLTR): Led the group with a 6.1% increase in estimates, fueled by 150% year-over-year growth in its U.S. Commercial business.
• Snowflake (SNOW): Saw a 3.4% revision as its CoCo product reached 60% customer penetration, up from 50% in the previous quarter.
• DigitalOcean (DOCN): Received a 3.2% revision, benefiting from continued strength in AI compute workloads.

Broad-Based Momentum

Beyond the top performers, several other companies posted significant achievements, underscoring the sector's broad strength. CrowdStrike (CRWD) reported record net new ARR of $333 million in its second fiscal quarter, a 51% year-over-year increase, and raised its full-year outlook.

Similarly, MongoDB (MDB) expanded its base of customers with over $100,000 in ARR by 17% year-over-year. In the security space, Palo Alto Networks (PANW) saw its revenue growth accelerate to 34% year-over-year in its fourth fiscal quarter, driven by strong customer platformization.