Investing.com -- The latest wave of U.S. tariffs rattled markets, hitting software stocks with declines ranging from low single digits to more than 10% in smaller-cap names. But according to Bernstein, the reaction may be more panic than substance.

“We would argue that while we understand the reaction we believe it is broadly overstated,” analysts wrote in a note.

Directly software is not going to be impacted by the US tariffs or counter-tariffs.

The impact will instead be macro-related demand headwinds, and it is even possible “we see a bit of a tailwind to GenAI adoption,” analyst added.

Unlike physical goods, software typically isn’t subject to tariffs, the firm said. Most software is delivered locally via cloud infrastructure already set up within tax jurisdictions, making tariff enforcement difficult.

Even if new digital duties are proposed, they would be “tough to implement,” Bernstein argued.

Instead, the real impact is likely to come from macroeconomic headwinds, particularly on smaller businesses, venture-backed firms, and vulnerable verticals.

Still, Bernstein sees a potential silver lining, that this would induce a bit of a tailwind to GenAI adoption as companies accelerate digital transformation to manage uncertainty.

Cloud services may appear more vulnerable due to their physical infrastructure, but Bernstein believes any margin pressure from data center components would be limited.

Labor, energy, and other costs are not as exposed, the firm noted, adding that hyperscalers and SaaS vendors already offer localized hosting options due to past regulatory demands.

As for potential retaliation against U.S. software by foreign governments, Bernstein sees limited options.

There is a very limited native software industry in most countries outside the U.S., the note said. Efforts to force domestic adoption could take years and historic attempts have backfired on their economies.

The upshot: software, despite early weakness, may prove to be a “surprise safer space” in the escalating tariff environment.