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While software sentiment remains bearish, earnings tell a different story.
The sector-wide selloff has compressed valuations to highly attractive levels.
Software titans like Microsoft are finding buyers at long-term technical support.
Is the AI-induced “SaaS-pocalypse” Real?
The software industry has suffered one of the biggest bearish divergences from the overall equity markets on Wall Street. Driven by fear of artificial intelligence disruption, the iShares Software ETF ((IGV - Free Report) ) is down nearly 13% over the past year while the S&P 500 Index is up 8%.
Image Source: Zacks Investment Research
In early 2026, software stocks cratered after Anthropic released its “Claude Cowork” agentic AI product.
Will Legacy Software-as-a-Service Players Survive?
The answer to the question above requires some nuance. There is not a one-size-fits-all answer to the question, other than investors likely “threw out the baby with the bath water” when they crushed all software stocks in early 2026. Although some legacy software companies will be disrupted, top-quality SaaS players will survive and even thrive because they have:
1. Data: Legacy software platforms hold years of transaction history, customer logs, and deeply entrenched data.
2. Compliance: Although AI coding assistants can build a custom CRM from scratch, Fortune 500 companies rely on legacy software companies because of their legal accountability and enterprise security.
3. AI Integration: Top software firms are successfully integrating AI into their existing products. These software companies benefit from built-in distribution.
Finally, one of the main bearish arguments is that agentic AI systems will mean the end of seat-based monetization. However, top AI companies like Anthropic and OpenAI are leveraging the seat-based monetization structure themselves, undercutting the bearish argument.
Software Earnings: Words Talk, Data Screams
If software companies are being disrupted, it certainly hasn’t shown up in corporate earnings yet. Last week, Figma ((FIG - Free Report) ) beat Zacks Consensus Estimates by 66%, signaling that AI remains incapable of high-level strategy, cross-functional empathy, or complex brand identity.
Image Source: Zacks Investment Research
Additionally, ServiceNow ((NOW - Free Report) ) is another quality software company showing few signs of slowing.While shares have declined over the past year,they are up nearly 10% today after an analyst upgrade. Meanwhile, although NOW shares are down, Wall Street analysts see steady earnings growth into the end of the decade.
Image Source: Zacks Investment Research
AI-native platform expansion, rising adoption of agentic capabilities, a growing customer base, acquisitions, and cash generation support NOW’s revenue durability over time.
Shrinking Valuations & Share Buybacks
Industry juggernaut Salesforce ((CRM - Free Report) ) recently announced that it will buy back ~250 million shares or ~$50 billion worth of stock. The buyback announcement is one of the largest on Wall Street and signals that CEO Marc Benioff has confidence in his company. Additionally, the buyback will reduce the share count, making the supply-demand dynamics more attractive for bulls. Meanwhile, with a p/e ratio of just 13.82x, CRM has become extremely attractive from a valuation perspective.
Image Source: Zacks Investment Research
MSFT Tags 200-week MA
Charlie Munger once famously said, “If all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time. The problem is that very few people have the kind of discipline to stick with it.” Microsoft ((MSFT - Free Report) ) shares recently found buyers at the 200-week moving average – a level that has held since the Global Financial Crisis of 2008.
Image Source: Zacks Investment Research
Bottom Line
Ultimately, Wall Street’s blanket punishment of the software sector has created a classic “baby out with the bathwater” scenario. Software stocks have decoupled from the S&P 500’s rally amid fears of AI disruption. However, recent software earnings reports suggest that the death of high-quality software companies is overexaggerated – especially given current valuations.
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Image: Bigstock
Software's "Baby with the Bathwater" Moment
Key Takeaways
Is the AI-induced “SaaS-pocalypse” Real?
The software industry has suffered one of the biggest bearish divergences from the overall equity markets on Wall Street. Driven by fear of artificial intelligence disruption, the iShares Software ETF ((IGV - Free Report) ) is down nearly 13% over the past year while the S&P 500 Index is up 8%.
Image Source: Zacks Investment Research
In early 2026, software stocks cratered after Anthropic released its “Claude Cowork” agentic AI product.
Will Legacy Software-as-a-Service Players Survive?
The answer to the question above requires some nuance. There is not a one-size-fits-all answer to the question, other than investors likely “threw out the baby with the bath water” when they crushed all software stocks in early 2026. Although some legacy software companies will be disrupted, top-quality SaaS players will survive and even thrive because they have:
1. Data: Legacy software platforms hold years of transaction history, customer logs, and deeply entrenched data.
2. Compliance: Although AI coding assistants can build a custom CRM from scratch, Fortune 500 companies rely on legacy software companies because of their legal accountability and enterprise security.
3. AI Integration: Top software firms are successfully integrating AI into their existing products. These software companies benefit from built-in distribution.
Finally, one of the main bearish arguments is that agentic AI systems will mean the end of seat-based monetization. However, top AI companies like Anthropic and OpenAI are leveraging the seat-based monetization structure themselves, undercutting the bearish argument.
Software Earnings: Words Talk, Data Screams
If software companies are being disrupted, it certainly hasn’t shown up in corporate earnings yet. Last week, Figma ((FIG - Free Report) ) beat Zacks Consensus Estimates by 66%, signaling that AI remains incapable of high-level strategy, cross-functional empathy, or complex brand identity.
Image Source: Zacks Investment Research
Additionally, ServiceNow ((NOW - Free Report) ) is another quality software company showing few signs of slowing.While shares have declined over the past year,they are up nearly 10% today after an analyst upgrade. Meanwhile, although NOW shares are down, Wall Street analysts see steady earnings growth into the end of the decade.
Image Source: Zacks Investment Research
AI-native platform expansion, rising adoption of agentic capabilities, a growing customer base, acquisitions, and cash generation support NOW’s revenue durability over time.
Shrinking Valuations & Share Buybacks
Industry juggernaut Salesforce ((CRM - Free Report) ) recently announced that it will buy back ~250 million shares or ~$50 billion worth of stock. The buyback announcement is one of the largest on Wall Street and signals that CEO Marc Benioff has confidence in his company. Additionally, the buyback will reduce the share count, making the supply-demand dynamics more attractive for bulls. Meanwhile, with a p/e ratio of just 13.82x, CRM has become extremely attractive from a valuation perspective.
Image Source: Zacks Investment Research
MSFT Tags 200-week MA
Charlie Munger once famously said, “If all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time. The problem is that very few people have the kind of discipline to stick with it.” Microsoft ((MSFT - Free Report) ) shares recently found buyers at the 200-week moving average – a level that has held since the Global Financial Crisis of 2008.
Image Source: Zacks Investment Research
Bottom Line
Ultimately, Wall Street’s blanket punishment of the software sector has created a classic “baby out with the bathwater” scenario. Software stocks have decoupled from the S&P 500’s rally amid fears of AI disruption. However, recent software earnings reports suggest that the death of high-quality software companies is overexaggerated – especially given current valuations.