The notion that a so-called "SaaS apocalypse" would drive software stocks all the way down to zero has ultimately proven to be nothing more than a fantasy.
The widely circulated market narrative throughout 2026 — that AI companies like Anthropic and OpenAI would completely destroy the business models of software-as-a-service (SaaS) firms — should now be put to rest. This market thesis had previously weighed heavily on numerous software companies, but the vast majority of software stocks have now staged a powerful rebound.
There are solid reasons behind this recovery. JPMorgan strategist Samik Chatterjee noted that the broad software sector and the IGV software ETF have climbed sharply since late June (see chart below); the sector has gained 21% cumulatively since the end of June, while the S&P 500 has risen only 4%. Standout performers include Paycom, DocuSign, Workday, Salesforce, Cloudflare, Twilio, and Microsoft.
Chatterjee stated that the broad-based rally in the sector is partly driven by a re-rating of valuation multiples for both infrastructure software and application software companies. Software sector stock prices have recovered. As investors digest third-quarter earnings, the positive momentum in software stocks is expected to extend through year-end.
"Heading into the third-quarter earnings season, we expect the overall upward momentum in software sector stock prices to continue. Driven by AI tailwinds, infrastructure software companies will see revenue and earnings significantly exceed expectations, though gross margins will likely remain flat at best — this sub-sector will be the leader of the rally," Chatterjee said.
He added: "We believe that, benefiting from upward revisions to full-year guidance and the continued progress of AI commercialization and monetization, application software companies will also catch up with the sector's rally before year-end. AI monetization is gradually becoming incremental revenue on top of companies' core businesses; among the companies we cover, core business growth has either slowed slightly or remained stable."