Banks gain amid software stock rout, despite credit questions

Core Viewpoint - The banking sector is outperforming the broader market despite concerns about potential losses from software companies due to recent developments in artificial intelligence [1][9]. Group 1: Banking Sector Performance - Traditional financial institutions have seen steady gains while tech stocks have been declining [2]. - Large and regional bank stocks have increased over the last month, while the S&P Software Index has dropped more than 20% [9][12]. - The KBW Nasdaq Bank Index is up over 2% in the last month, and the KBW Nasdaq Regional Bank Index has risen nearly 11% [12]. Group 2: Exposure to Software Sector - It is challenging to determine the extent of banks' exposure to the software sector, as many do not break down their loan portfolios by sector [3]. - Bank of America reported approximately $14.6 billion in utilized loans to the software industry, representing about 1.8% of its total utilized commercial credit exposure as of September 30, 2025 [4]. - Analyst estimates suggest that tech loans constitute less than 3% of total loan books across the banking industry [4]. Group 3: Historical Context and Investor Behavior - The banking sector's relative stability is reminiscent of its performance after the dot-com bubble burst in 2000, where banks largely remained unscathed despite some credit losses [9][13]. - Investors are currently seeking refuge in the banking sector due to its predictability and lower disruption risk compared to the volatile tech sector [11][13]. - The influx of new investors into the banking sector has contributed to its recent outperformance [14][15].