The software sector is suffering a broad and violent sell-off, with sector indexes like the iShares Expanded Tech-Software Sector ETF (NYSE:IGV) entering a technical bear market.
The software sell-off has been driven by a wave of investor anxiety some are calling the “SaaSpocalypse,” where there is fear that AI has moved from being a helpful co-pilot to an existential threat to software companies.
The launch of autonomous AI tools like Anthropic's Claude Cowork has triggered concerns that AI agents will automate high-value tasks so effectively that companies will no longer need to pay for thousands of individual software licenses.
On the other hand, Wedbush analyst and tech bull Dan Ives views the pullback as a “software garage sale,” providing a buying opportunity for resilient tech giants.
"While the software complex has become a ‘Do Not Enter’ zone over the past month, we believe there are winners and opportunities in the software space,” Ives said.
In a note titled, "The Software Armageddon is Here; 5 Names to Buy in this ‘Software Garage Sale'," Ives points to five software companies that he sees as "winners" in the software space:
- Palantir Technologies, Inc. (NASDAQ:PLTR)
- Microsoft Corp. (NASDAQ:MSFT)
- Snowflake, Inc. (NYSE:SNOW)
- Salesforce, Inc. (NYSE:CRM)
- CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
The market is pricing in a “doomsday scenario,” while the Wedbush analyst believes the panic is “extremely overblown.”
Ives noted that OpenAI and Anthropic are relatively new players who do not currently have the capacity to house all of the enterprise data and hold it securely.
Wedbush sees plenty of room left for software in the tech universe as large enterprises are unlikely to abandon decades of deeply ingrained software infrastructure overnight due to data security risks and the massive costs of migration.
“The magnitude of this software sell-off is a major head scratcher and is factoring in an Armageddon scenario for the sector that is far from reality in our view,” Ives said.
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