Veteran Analyst Calls Software Stock Selloff 'Massively Overblown' Amid AI Fears

TLDR

Table of Contents

Dan Ives from Wedbush characterizes the current software sector decline as the most irrational market movement he’s witnessed in two decades
Year-to-date performance shows the iShares Expanded Tech-Software Sector ETF declining 19% versus a mere 0.4% drop in the S&P 500
According to Ives, concerns regarding AI’s threat to conventional software businesses lack foundation
His forecast suggests established platforms including Salesforce, ServiceNow, and Workday will capture roughly 30% of total AI investment
Recent progress in Anthropic’s agent technology may signal a turning point for battered software equities

Dan Ives, a prominent analyst at Wedbush Securities, delivered a forceful rebuttal to the widespread software sector decline during a Tuesday appearance at CNBC’s Future Proof conference. He characterized the current market dynamic as the most illogical technology-related trade pattern he’s observed across 15 to 20 years of market analysis.

Year-to-date figures reveal the iShares Expanded Tech-Software Sector ETF has surrendered 19% of its value. Meanwhile, the broader S&P 500 index has experienced only a marginal 0.4% decline during the identical timeframe.

Ives attributed the sector’s struggles to what he termed an “AI ghost trade”—a phenomenon where investors have dramatically overestimated artificial intelligence’s capacity to render traditional software enterprises obsolete.

“It’s ultimately software that the use cases from Salesforce to ServiceNow to ultimately cybersecurity is gonna protect the CrowdStrike, Palo Alto and others,” Ives said during the interview.

His position centers on the notion that artificial intelligence’s genuine commercial potential resides within legacy software infrastructure rather than emerging AI-focused ventures. Ives maintains that the extensive data repositories and customer ecosystems cultivated by industry leaders such as Salesforce, ServiceNow, Workday, and Oracle represent the true bedrock upon which AI’s business applications will be constructed.

Why Ives Thinks Software Will Win the AI Race

Ives projects that approximately 30% of aggregate AI-related capital expenditure will ultimately channel toward traditional software enterprises. He highlighted Palantir as a preliminary demonstration of successful revenue generation within this emerging landscape.

Additionally, he referenced recent innovations from Anthropic concerning their autonomous agent capabilities as a possible indication that software stocks have reached their nadir.

“My whole point is that, yeah, is it gonna disrupt pure play software one trick pony, some vendors? But the reality is the data, the value, it’s in the stacks,” Ives said.

The analyst also anticipates increased merger and acquisition activity throughout the software landscape as companies navigate continued market pressure.

Market Sentiment and ETF Data

Current metrics place the iShares Expanded Tech-Software Sector ETF’s total market capitalization near $10.88 billion. The fund maintains a price-to-earnings multiple of 41.43 alongside a price-to-sales ratio of 20.24.

From a technical perspective, the ETF’s 50-day moving average registers at 92.27, trailing its 200-day moving average of 105.22. This configuration indicates persistent downward momentum remains intact.

With a beta coefficient of 1.3, the fund demonstrates amplified sensitivity to broader market fluctuations. Its volatility measurement stands at 27.18.

Despite recent headwinds, the fund maintains a robust 35.2% return on equity, while its Altman Z-Score of 20.35 indicates the constituent companies retain sound financial footing.

Ives employed vivid imagery to encapsulate his perspective: “Right now, the Miami cab driver is bearish in software, and I think that’s a bullish sign relative to where I see software this year.”

Historical performance data shows the iShares Expanded Tech-Software Sector ETF delivered three-year revenue expansion of 18.97% while maintaining an impressive gross margin of 74.37%.

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