US software stocks encounter AI "growth crisis" questioning: sector ETF hits near two and a half year low, SaaS index plunges

On Thursday, the stock price of the software company fell, and the sector continued to struggle due to concerns over the disruptive impact of artificial intelligence services. The iShares Expanded Tech Software Industry ETF (IGV.US) fell by 3.9%, closing at its lowest level since November 2023. The ETF has declined by over 27% so far this year. The SaaS stock index dropped by 4.8%, with a decrease of 9% for the week and a nearly 40% decline for the year. This year's sell-off stemmed from investors' concerns that artificial intelligence products would weaken the demand for traditional service providers, affecting their future pricing power. The surge in so-called artificial intelligence agents - agents designed to complete multi-step processes without human intervention - is seen as a particular challenge for SaaS stocks. "We are facing an unprecedented environment threat now, and expectations for future growth have been completely shattered," said Kevin Caron, Co-Chief Investment Officer at Washington Crossing Advisors. "Before the emergence of artificial intelligence, people didn't worry about someone developing some sort of alternative software. Now, we have to reassess everyone's competitive advantage." On Wednesday, Anthropic launched the Claude Managed Agents, while Meta Platforms (META.US) released a new AI model, sparking the latest concerns. Prominent investor Michael Burry wrote on social media, "If you are an investor in these markets, paying attention to Claude might be worthwhile." He also attached a chart showing the sell-off of software stocks. Among the declining stocks, Palantir Technologies (PLTR.US) fell by 7.3%, Oracle Corporation (ORCL.US) dropped by 4%, Salesforce, Inc. (CRM.US) declined by 3.1%, ServiceNow (NOW.US) plummeted by 7.9%, and Workday (WDAY.US) fell by 5.1%. Currently, concerns about artificial intelligence potentially disrupting growth stocks are more reflected in market sentiment than in financial performance. Data shows that the profit growth rate for the software industry in 2027 is expected to reach 16.5%, which has increased in recent weeks from 15.7% at the end of February. Revenue expectations also show a similar trend. Given that software valuations are significantly below long-term average levels, some believe that the magnitude of this decline is too large. The index tracking software companies currently has a price-to-earnings ratio of 20.6, while its 10-year average price-to-earnings ratio is 34. "Despite some long-term risks, the situation remains relatively robust for this year and the next, with the software industry having a strong balance sheet, low debt, and ample cash," Caron, who manages assets of around $11 billion, said. "The industry still has significant cash flow and profits, indicating that now may be a good time to enter."