Software was supposed to be the safe bet in tech. This year, it's been the opposite.
The iShares Expanded Tech-Software Sector ETF fell 3.9% this week, closing at a level not seen since November 2023. The fund is down more than 27% in 2026. A broader SaaS index has been hit even harder - down nearly 40% this year, with 9% of that drop in just the past week.
The issue isn't today's earnings. It's what comes next.
Investors are betting that AI agents - tools built to do complex tasks without human help - could replace the software companies pay for now. If an AI can run customer support, set up meetings, and manage a sales pipeline on its own, every app that used to do one of those jobs is worth less.
Microsoft makes up about 10% of the IGV fund and is the biggest driver of the decline.
This isn't just a stock story. For years, SaaS firms were priced on steady, recurring revenue and customer lock-in. AI threatens both of those pillars.
The sell-off has been broad - not just small names. Heavy hitters across the sector are getting dragged down too.
Earnings season will test whether the fear is real or overdone. If software firms can show AI is making their products better - not killing them - the story could flip. For now, the market is pricing in a shakeup.
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