Software’s AI-driven disruption story continued to weigh on the sector as Anthropic released new revenue and product updates, renewing concerns that agentic AI could erode traditional software-as-a-service models. The iShares Expanded Tech-Software Sector ETF, known as IGV, slid on Wednesday and again on Thursday, leaving it down more than 4% for the week as investors weighed the implications for software names. The broader market rally on Wednesday, sparked by news of a ceasefire announcement from President Donald Trump, did little to stem the software pullback, which has dragged the group deeper into a volatile bear phase this year.
Anthropic’s latest disclosures put fresh wind in the sails of its growth story but at the same time intensified fears about a sweeping disruption to software business models. The company said its revenue run rate now tops $30 billion, up from $9 billion at the end of 2025. It also unveiled updates to its agentic tools, including Claude Managed Agents, designed to reduce the time developers spend building their own agents. The announcements rekindled discussion about an AI-driven reallocation of spending away from traditional SaaS products toward more automated and capable AI platforms.
“The exponential we are seeing below stems from the onset of software being tokenized to replace and augment a labor force that supports a tens-of-trillions TAM,” wrote Ben Reitzes, head of technology research at Melius Research, in a Wednesday note. He argued that “we are in inning one” of a broader AI-enabled shift and that investors must align narratives with this early-stage growth trajectory for software stocks to perform.
Key takeaways
- The IGV ETF fell more than 4% over the past five trading days, tracking a softening tone for software names after Anthropic’s updates.
- Anthropic reported a revenue run rate above $30 billion, up from $9 billion at the end of 2025, and highlighted new agentic tools such as Claude Managed Agents.
- Hardware and semiconductor exposure, as measured by the VanEck Semiconductor ETF, outperformed, rising more than 9% during the week, signaling sector rotation away from software toward chipmakers.
- Industry observers warned that while some software companies may benefit, the transition could saddle other peers with meaningful earnings and employment-cost challenges, particularly for big SaaS platforms and even members of the Magnificent Seven.
What drove the move
Anthropic’s revenue trajectory stood at the center of the market’s attention. The company’s latest update underscored a rapid acceleration in its top-line trajectory, reinforcing the narrative that AI-enabled automation could unlock a significantly larger total addressable market for software, albeit with a shift away from traditional SaaS motifs. The company’s progress with agentic tooling—designed to push automation deeper into enterprise workflows—fueled concerns that software firms may need to radically retool or lose share to AI-first platforms.
Analysts and investors highlighted how the AI disruption could rewrite competitive dynamics across the tech sector. Reitzes noted that “software is being tokenized to replace and augment labor,” a development that could translate into an outsized impact on the profitability and growth profiles of conventional SaaS vendors. The market’s worry is not only about demand attrition but also about the potential for a broader reallocation of budgets toward AI-native solutions and hardware that can underpin these new workloads.
Market reaction
Software equities remain in a defensive crouch as investors reassess the pace and profitability of AI-driven disruption. The IGV’s decline this week contrasts with the brief market relief seen on Wednesday’s rally, underscoring a bifurcated environment where some segments suffer even as others rally. The software sector has shed more than a third from its recent highs and sits notably lower for the year, reflecting a combination of elevated expectations, skepticism about near-term profitability, and the potential for earnings volatility as AI investments scale.
Meanwhile, the semiconductor complex captured the flow of funds as investors rotated into hardware plays poised to benefit from AI compute demand. The VanEck Semiconductor ETF surged more than 9% during the week, underscoring the market’s preference for assets more closely tied to the infrastructure enabling AI workloads. In this context, some market participants view the AI transition as favorable for chipmakers and other hardware suppliers, even as pure-play software valuations come under pressure.
Industry voices emphasize that the current softness may be selective and driven by a mix of valuation re-pricing and a re-evaluation of earnings power under AI scenarios. “SaaS is to be avoided,” Reitzes remarked in a CNBC conversation, signaling a cautious stance toward software equities until confidence returns on sustainable demand and margin outlooks. The debate also touches on the resilience of software franchises during a period of potential white-collar automation, an argument that has rallied some investors toward a more selective approach to software exposure.
What analysts are saying
Investor opinions are split between enduring optimism for AI-enabled productivity and caution about the near-term earnings trajectory. John Belton, portfolio manager of the GGRW ETF at Gabelli Funds, said he remains selective, noting that not every software company will be a casualty of the AI shift. Belton added that he intends to keep software exposure light until there are clearer signs of stabilization in sentiment or a bottom in software equities, reflecting a risk-averse posture amid the sector’s volatility.
On the broader horizon, analysts are weighing how AI-driven automation could influence the fortunes of large technology platforms. Some see potential strain on platforms like Microsoft’s ecosystem if frontiers in model development are not matched by corresponding efficiency gains, while others see opportunities for AI-first services to redefine customer value propositions. The timing and pace of this disruption will hinge on advancements in AI tooling, productivity gains, and how corporations allocate capital to AI initiatives versus other growth areas.
Bigger picture
Investors are balancing two forces: the transformative potential of AI to unlock new revenue pools and efficiencies, and the risk that incumbents may face meaningful margin pressure as they compete with AI-native offerings. The market has already priced a sizable portion of AI excitement into software valuations, and the challenge now is to determine which firms can translate AI momentum into durable earnings power. The AI narrative remains a high-conviction, long-duration theme, but near-term returns may hinge on earnings visibility, cost structure, and the degree of customer adoption for newer agentic tools.
Beyond company-specific dynamics, the macro backdrop—ranging from interest-rate expectations to inflation data and geopolitics—continues to shape how investors interpret AI news. If rates remain elevated or sentiment fluctuates around growth prospects, the pressure on software valuations could persist even as AI hardware and services benefit from continued capital expenditure by public and private sectors. The coming quarters will be telling for whether software firms can translate AI enthusiasm into steady, margin-rich growth or whether the sector will remain pressured as investors demand clearer, cash-flow-positive outcomes.
Looking ahead, investors will be watching earnings guidance from software peers for signs of resilience in subscription models, net retention, and operating margins as AI investments scale. Data on AI-related capital expenditure, customer adoption, and the pace of productivity gains will also influence how aggressively market participants rotate into hardware versus software, and where the next leg of AI-driven growth may emerge.
As the week closes, the overarching takeaway is that AI-driven disruption remains a double-edged sword for software: it promises a larger TAM and productivity gains, yet it also elevates the risk that traditional SaaS models face ongoing pressure. For now, traders will prioritize those pieces of evidence that can translate AI promises into tangible earnings power and durable market leadership.
