AI Is Killing Software (But Not These 4 Businesses)
IGV, the Software Sector ETF, is in a 35% drawdown from all-time highs set just 4 months ago.
Over $2 trillion in market cap has been erased in a matter of weeks. What has been dubbed as the SaaS-pocalypse has led to a market wide drawdown.
The reason behind this sell-off has largely been attributed to one reason: AI coding tools like Claude Code and Codex by OpenAI have made it so easy to “vibe-code” software programmes that ultimately calls into question the long-term future of these businesses.
Apparently, the market seems to believe that anyone can “vibe-code” their very own Salesforce in a weekend, replacing the “per-seat” model that software companies tend to run on.
To be clear, I am of the belief that these coding tools will ultimately replace some software businesses. But if we look at this from a holistic view, we are not going to see sector-wide disruption.
As such, I believe this is one of the largest overreactions in public markets, on a similar level to the DeepSeek moment last year that catalysed a 40% drawdown in Nvidia, wiping out over a trillion dollars in enterprise value.
The truth is, the usefulness of SaaS platforms lie not in the structure of their product, but rather the customer data, integrations, switching costs, network effects and trust within organisations.
If there’s anything that is clear to see from this, the one way for investors to benefit today, is by owning beaten-down names that are extremely unlikely to be dis-intermediated by AI. Extra points if they get stronger through AI.
