A historic divide has emerged on Wall Street as software stocks suffer their worst monthly decline since 2008, pitting technical analysts betting on a massive recovery against fundamentalists who fear the industry's business model is facing an existential threat from artificial intelligence (AI).
The ‘SaaSpocalypse’ Selloff
The software sector has shifted from a state of bearishness to “doomsday” sentiment. Jeffrey Favuzza of Jefferies' equity trading desk told Bloomberg, "We call it the ‘SaaSpocalypse,' an apocalypse for software-as-a-service stocks," noting that current market activity represents "get me out" style panic selling.
The ETFs tracking the software stocks in the U.S. have underperformed so far in 2026. iShares Expanded Tech-Software Sector ETF(BATS:IGV) dropped 20.19%, and State Street SPDR S&P Software & Services ETF(NYSE:XSW) declined 17.25%.
The rout intensified on Tuesday after the AI startup Anthropic released a productivity tool capable of automating legal work. The news triggered a vertical selloff among companies like Thomson Reuters Corp.(NASDAQ:TRI), down 15.83%, and LegalZoom.com Inc.(NASDAQ:LZ) plummeted 19.68%.
BTIG's Case For A Snap-Back
Despite the carnage, BTIG's chief market technician Jonathan Krinsky sees a tactical opportunity. In a note to clients shared by Lisa Abramowicz on X, Krinsky highlighted that software has underperformed semiconductors by 20% over the last 20 days—the largest such gap since the dot-com bubble peak in February 2000.
Krinsky suggests that these “extremes” make a significant mean reversion likely, noting that the sector is “probably oversold enough for a bounce.”
However, he cautioned that it may take a considerable amount of time to “repair and build a new base,” given the rapid deterioration of the sector’s relative strength.
"Software has underperformed semis by 20% over the last 20 days – the largest gap since the dot-com bubble peak in February 2000….These extremes suggest a significant mean reversion is likely, with either software rallying, semis declining, or both:" BTIG's Jonathan Krinsky
On CNBC's Mad Money, Jim Cramer offered a far bleaker fundamental outlook, warning that “software companies shrivel up and die” in the current environment.
Cramer argued that Wall Street is convinced AI will either replace traditional software or drastically cut into the user bases of companies like Salesforce Inc.(NYSE:CRM) and ServiceNow Inc. (NYSE:NOW).
"The prediction for software holders is the House of Pain," Cramer said, pointing out that even companies with strong earnings, such as Microsoft Corp. (NASDAQ:MSFT) and Adobe Inc. (NASDAQ:ADBE), are watching their stock prices “wither and get blown away.”
Cramer noted that while the earnings haven’t disappeared yet, the market is aggressively shrinking price-to-earnings multiples because investors no longer trust the long-term “per seat” licensing model in an AI-driven world.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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