The SaaS Apocalypse: Will Software Stocks Recover?

Software stocks have been decimated in 2026. Amid fears that AI technology from the likes of Anthropic and OpenAI is going to disrupt software-as-a-service (SaaS) business models, the S&P Software & Services Select Industry Index has fallen over 20%¹. Will software stocks recover? Here’s what Wall Street analysts and industry experts think.

A Sell-Off Based on Broken Logic

In a research note² posted earlier this month, analysts at JP Morgan said that the software sell-off has gone too far. They believe that fears surrounding potential AI disruption are "overblown" and based on "broken logic." In their view, investors are currently pricing in worst-case AI disruption scenarios that are unlikely to materialize. The analysts argue that long-term contracts and high switching costs create "moats" for software firms that are likely to protect them from being disrupted overnight.

Given the scale of the weakness across the software sector, JP Morgan's analysts believe that investors should consider adding exposure to high-quality, AI-resilient software companies. Here, they point to stocks such as Microsoft, ServiceNow, CrowdStrike, and Palo Alto Networks. They believe that these kinds of companies will actually benefit from AI by improving user workflows. Ultimately, enterprises will still need existing platforms to make AI work in a secure, enterprise-grade environment.

Misplaced Concerns

Analysts at HSBC³ have similar views to the analysts at JP Morgan. They see the AI replacing software narrative as “flawed” and “illogical.” Their view is that AI's usefulness in the enterprise is limited without software and that the most effective solutions will come from collaboration between AI and established platforms. Their take is that it is neither practical nor economically sound for companies to use AI to write their own applications.

HSBC’s analysts believe that established software firms such as Oracle, Microsoft, Salesforce are best positioned to prosper in the AI era. They see their existing domain expertise, deep customer relationships, and historical understanding of corporate workflows as important. While acknowledging that "single-function" or "user-interface-driven" apps could face pressure, the analysts view the selloff as an opportunity to build exposure to high-quality platforms and mission-critical infrastructure software. They point out that switching costs remain prohibitively high given risks in relation to revenue disruption, productivity loss, and unforeseen system failures during platform replacements, and that even with strong code, new entrants face daunting barriers to entry because enterprise software requires years demonstrating 99.999% uptime and error-free operations across diverse IT environments.

A Disconnected Trade

Wedbush Securities Managing Director Dan Ives⁴ has been a vocal critic of the recent software sell-off, calling the AI is going kill off software narrative a "doomsday scenario" that ignores reality. He argues that enterprise customers are not going to suddenly replace decades of established software infrastructure for unproven AI tools overnight, and that there’s a massive disconnect between stock prices and fundamentals at present. His view is that solutions from the likes of Microsoft, Oracle, and Salesforce are so entrenched in enterprises that these software companies have a moat. While he noted that some pure play names will be disintermediated, he sees the current sell-off as a “DeepSeek-type moment” that could turn out to be a golden buying opportunity.

In terms of individual stocks, Ives has highlighted Salesforce as a stock that has been unfairly punished. He believes that this company will see accelerating growth as its agentic AI solutions gain momentum in the market. He also believes that in the long run, it will be a major player in the AI space. Ives’ price target here is currently $375⁵ – around 100% above the current share price.

A Sentiment-Driven Crash

At Morgan Stanley, Global Director of Research Katy Huberty⁶ has described the software sector meltdown as a "sentiment-driven dislocation" rather than a fundamental business failure. She argues that companies with systems of record have deep moats that AI cannot easily cross because they hold the essential proprietary data needed for AI to function.

Separately, Morgan Stanley’s Head of US Software Research Keith Weiss⁷ has said that investors are underestimating the ability of incumbent vendors to benefit from AI adoption. He has highlighted stocks such as Microsoft, Intuit, Salesforce, ServiceNow, Atlassian, Snowflake, Cloudflare, and Palo Alto Networks as attractive opportunities in the current market, citing strong product cycles, improving financial metrics, and discounted valuations.

Oversold Levels

Turning to Jefferies⁸, its analysts have issued some striking technical data amid the software sell-off. Earlier this month, they highlighted the fact that nearly 75% of US software stocks were screening as "oversold" – the highest reading in the firm's recorded history for the sector. At the time, they noted that the iShares Expanded Tech-Software ETF (IGV) had reached a historic low relative to the S&P 500, suggesting a "snap-back" rally was likely. They flagged Docusign, Intuit, and Atlassian as stocks with oversold RSI indicators, perfect analyst scores, and accelerating cloud revenue.

An Illogical Sell-Off

Finally, it’s worth listening to what Nvidia CEO Jensen Huang⁹ has said about software stocks. Recently, he described the market's fear that AI will replace software tools as "the most illogical thing in the world." Speaking on CNBC, Huang said that even as AI advances, it will still require software infrastructure to function. His view is that it makes far more sense to use existing tools rather than reinvent new ones and that AI will use and supercharge existing software rather than replacing it.

Footnotes:

¹S&P Global, S&P Software & Services Select Industry Index, as of February 18, 2026

²Yahoo Finance, AI disruption fears create buying chance in US software stocks, strategists say, as of February 10, 2026

³Proactive, Leading bank calls AI threat to enterprise software "illogical," upgrades five stocks for 2026, as of February 13, 2026

⁴CNBC, Dan Ives: Software being disintermediated by AI is the most disconnected trade I’ve ever seen, as of February 13, 2026

⁵Tip Ranks, Analyst Updates Bolster Salesforce Stock (CRM) Post Q3, as of December 4, 2025

⁶Reuters, AI disruption fears create buying chance in US software stocks, strategists say, as of February 11, 2026

⁷Yahoo Finance, Morgan Stanley says buy these 9 AI-hit software stocks on discount, as of February 9, 2026

⁸Morning Star, Software ate the world. Now, Wall Street is worried AI will eat software., as of February 5, 2026

⁹CNBC, AI fears pummel software stocks: Is it ‘illogical’ panic or a SaaS apocalypse?, as of February 5, 2026