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3 Software ETFs to Buy as the SaaSpocalypse Bottoms Out
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Key Takeaways
IGV plunged 24% in Q1 before rebounding more than 40% from its April low by September.
Software earnings challenged fears of AI disruption, with Salesforce and Palo Alto Networks posting growth.
ETFs spread exposure across software stocks, helping cushion investors from company-specific blowups.
The "SaaSpocalypse" is officially over. What began in early 2026 as a brutal sell-off, driven by existential fears that artificial intelligence (AI) coding tools would render traditional software obsolete, has now given way to a sharp recovery.
Evidently, iShares Expanded Tech-Software Sector ETF (IGV - Free Report) plummeted 24% in the first quarter, its worst performance since 2008. By September, that same fund had rebounded dramatically, surging more than 40% from its April lows.
However, the shift is nuanced: this isn't a return to the pre-AI status quo. Software companies are adapting, integrating agentic AI into their core offerings and proving that the disruption thesis was overstated.
For investors seeking exposure to this recovery without betting on individual winners, software exchange-traded funds (ETFs) offer a compelling entry point.
Before identifying these ETFs, investors should understand what SaaSpocalypse was and why it ended to better assess the investment landscape.
The Rise & Fall of SaaSocalypse
SaaSpocalypse began in February 2026, when Anthropic unveiled advanced AI tools for its Claude agent, raising concerns that AI agents could replace software workflows. Investors panicked, fearing that AI could replicate software functionality at a fraction of the cost, rendering subscription-based SaaS models obsolete.
Stocks like Salesforce (CRM - Free Report) and ServiceNow (NOW - Free Report) were hit the hardest. Venture funding dried up for SaaS startups, with 86% of private deal value in the first half of 2026 flowing to AI companies instead (according to PitchBook-NVCA data).
The turning point came as earnings revealed a different reality. For instance, Salesforce, despite losing over 40% of its value since late 2024, reported solid 11% revenue growth in the second quarter of fiscal 2027, while its net income jumped 87%. The company also raised its full-year fiscal guidance.
ServiceNow reported second-quarter 2026 revenues and earnings that beat expectations this July. Other software stocks like Palo Alto Networks (PANW - Free Report) posted strong fiscal third-quarter 2026 results with revenues growing a solid 31% year over year to $3 billion, whereas its Remaining Performance Obligation (“RPO”) climbed 36%.
In a nutshell, SaaSpocalypse, which erased $1 trillion in market capitalization from software stocks in early 2026, ended in June as investors increasingly viewed AI as a significant tailwind for software providers.
The Rationale Behind ETF Investment
The software recovery is real, but it's uneven. While ServiceNow jumped 7% after earnings, HubSpot suffered its worst day in a decade, plunging 19% following its second-quarter financial results despite beating Wall Street estimates.
This divergence makes individual stock picking quite risky for investors. ETFs mitigate this risk by spreading exposure across dozens of holdings, capturing the sector's broader recovery while cushioning against company-specific blowups. With top holdings such as Palo Alto Networks, CrowdStrike and Salesforce, software ETFs offer diversified exposure to companies positioned to benefit from growing AI adoption.
Software ETFs to Buy
Considering the aforementioned discussion, investors ready to capitalize on the software industry’s path to recovery may add the following ETFs to their portfolios:
This fund, with net assets worth $14.11 billion, offers exposure to 106 software, cloud and digital media companies. PANW holds the first spot in this fund, with a 9.41% weight, while NOW holds the sixth position with a 4.56% weight. CRM holds the eighth spot in this fund, with a 4.13% weight.
IGV has rallied 21.5% over the past three months and charges 38 basis points (bps) in fees. It traded at a good volume of 6.43 million shares in the last trading session and holds a Zacks ETF Rank #2 (Buy).
This fund, with a market value of $1.44 billion, includes companies with significant exposure to technologies or products that contribute to future software development through direct revenues. Advanced Micro Devices (AMD - Free Report) holds the first spot in this fund, with a 9.01% weight, while META Platforms (META - Free Report) holds the second position with an 8.53% weight.
IGPT has gained 4.2% over the past three months and charges 57 bps in fees. It traded at a volume of 0.06 million shares in the last trading session and sports a Zacks ETF Rank #1 (Strong Buy).
State Street SPDR S&P Software & Services ETF (XSW - Free Report)
This fund, with assets under management (AUM) worth $499.7 million, offers exposure to 131 Application Software, Interactive Home Entertainment, IT Consulting & Other Services, and Systems Software companies. Rubrik Inc. holds the first spot in this fund, with a 0.96% weight, while PANW holds the tenth position with a 0.87% weight.
XSW has soared 18.8% over the past three months and charges 35 bps in fees. It traded at a volume of 0.06 million shares in the last trading session and carries a Zacks ETF Rank #2.
View the Zacks #1 Rank List
Image: Bigstock
3 Software ETFs to Buy as the SaaSpocalypse Bottoms Out
Key Takeaways
The "SaaSpocalypse" is officially over. What began in early 2026 as a brutal sell-off, driven by existential fears that artificial intelligence (AI) coding tools would render traditional software obsolete, has now given way to a sharp recovery.
Evidently, iShares Expanded Tech-Software Sector ETF (IGV - Free Report) plummeted 24% in the first quarter, its worst performance since 2008. By September, that same fund had rebounded dramatically, surging more than 40% from its April lows.
However, the shift is nuanced: this isn't a return to the pre-AI status quo. Software companies are adapting, integrating agentic AI into their core offerings and proving that the disruption thesis was overstated.
For investors seeking exposure to this recovery without betting on individual winners, software exchange-traded funds (ETFs) offer a compelling entry point.
Before identifying these ETFs, investors should understand what SaaSpocalypse was and why it ended to better assess the investment landscape.
The Rise & Fall of SaaSocalypse
SaaSpocalypse began in February 2026, when Anthropic unveiled advanced AI tools for its Claude agent, raising concerns that AI agents could replace software workflows. Investors panicked, fearing that AI could replicate software functionality at a fraction of the cost, rendering subscription-based SaaS models obsolete.
Stocks like Salesforce (CRM - Free Report) and ServiceNow (NOW - Free Report) were hit the hardest. Venture funding dried up for SaaS startups, with 86% of private deal value in the first half of 2026 flowing to AI companies instead (according to PitchBook-NVCA data).
The turning point came as earnings revealed a different reality. For instance, Salesforce, despite losing over 40% of its value since late 2024, reported solid 11% revenue growth in the second quarter of fiscal 2027, while its net income jumped 87%. The company also raised its full-year fiscal guidance.
ServiceNow reported second-quarter 2026 revenues and earnings that beat expectations this July. Other software stocks like Palo Alto Networks (PANW - Free Report) posted strong fiscal third-quarter 2026 results with revenues growing a solid 31% year over year to $3 billion, whereas its Remaining Performance Obligation (“RPO”) climbed 36%.
In a nutshell, SaaSpocalypse, which erased $1 trillion in market capitalization from software stocks in early 2026, ended in June as investors increasingly viewed AI as a significant tailwind for software providers.
The Rationale Behind ETF Investment
The software recovery is real, but it's uneven. While ServiceNow jumped 7% after earnings, HubSpot suffered its worst day in a decade, plunging 19% following its second-quarter financial results despite beating Wall Street estimates.
This divergence makes individual stock picking quite risky for investors. ETFs mitigate this risk by spreading exposure across dozens of holdings, capturing the sector's broader recovery while cushioning against company-specific blowups. With top holdings such as Palo Alto Networks, CrowdStrike and Salesforce, software ETFs offer diversified exposure to companies positioned to benefit from growing AI adoption.
Software ETFs to Buy
Considering the aforementioned discussion, investors ready to capitalize on the software industry’s path to recovery may add the following ETFs to their portfolios:
iShares Expanded Tech-Software Sector ETF (IGV - Free Report)
This fund, with net assets worth $14.11 billion, offers exposure to 106 software, cloud and digital media companies. PANW holds the first spot in this fund, with a 9.41% weight, while NOW holds the sixth position with a 4.56% weight. CRM holds the eighth spot in this fund, with a 4.13% weight.
IGV has rallied 21.5% over the past three months and charges 38 basis points (bps) in fees. It traded at a good volume of 6.43 million shares in the last trading session and holds a Zacks ETF Rank #2 (Buy).
Invesco AI and Next Gen Software ETF (IGPT - Free Report)
This fund, with a market value of $1.44 billion, includes companies with significant exposure to technologies or products that contribute to future software development through direct revenues. Advanced Micro Devices (AMD - Free Report) holds the first spot in this fund, with a 9.01% weight, while META Platforms (META - Free Report) holds the second position with an 8.53% weight.
IGPT has gained 4.2% over the past three months and charges 57 bps in fees. It traded at a volume of 0.06 million shares in the last trading session and sports a Zacks ETF Rank #1 (Strong Buy).
State Street SPDR S&P Software & Services ETF (XSW - Free Report)
This fund, with assets under management (AUM) worth $499.7 million, offers exposure to 131 Application Software, Interactive Home Entertainment, IT Consulting & Other Services, and Systems Software companies. Rubrik Inc. holds the first spot in this fund, with a 0.96% weight, while PANW holds the tenth position with a 0.87% weight.
XSW has soared 18.8% over the past three months and charges 35 bps in fees. It traded at a volume of 0.06 million shares in the last trading session and carries a Zacks ETF Rank #2.