One software update shouldn't be enough to spook the market...
But investors don't seem to have gotten the message.
In mid-January, an AI business known as Anthropic released a new version of its flagship AI model.
The model, called Claude, is a chatbot similar to ChatGPT. And Claude is now completing work far faster than humans ever could.
Anthropic's update included specific tools built for programmers. Claude doesn't just help write a single line of code anymore. Now it can take a prompt... write a full program... and launch it within hours.
And the market didn't like that one bit.
For years, investors assumed AI would help software companies by boosting developer productivity and lowering costs. They weren't wrong.
But there has always been a second side to that story...
If AI can create software quickly... it can also lower the value of existing software by introducing new competition...
When investors saw this in action, they panicked. And they haven't calmed down yet. The S&P North American Expanded Technology Software Index is down 15% this year.
Companies in niche markets were hit the hardest. Take LegalZoom (LZ)... which, as you might have guessed, sells legal software.
Anthropic's latest Claude release can quickly handle legal tasks like document review. LegalZoom's stock plunged on the news and hasn't recovered. It's down more than 30% since the start of January.
The selling didn't stop there, though. It spread across the market – from niche software providers to industry giants. Customer-relationship management leader Salesforce (CRM) is down almost 25% since the start of 2026.
Most of these businesses sell recurring software subscriptions... a business model known as Software as a Service ("SaaS"). If AI can build in hours what once took engineers weeks to build, pricing power and customer retention could crumble.
That's why this sell-off has been dubbed the "SaaSpocalypse."
We're not saying investors are wrong to be worried...
But the market's reaction has been emotional. That's never a good approach.
On an as-reported basis, the software index now trades around a 20 times price-to-earnings (P/E) ratio. Put simply, software stocks are the cheapest they've been since the index was created in 2018.
Take a look...
Uniform Accounting shows a similar setup. Last year, software companies traded at a 24 times Uniform P/E ratio... right around the market average.
Now, they trade at just 18 times.
Of course, not every software company will escape the AI revolution unscathed. New tech will disrupt certain niches. Some products will be replaced.
But the bullish case for AI investment hasn't changed.
If anything, it's getting stronger...
Hyperscalers are still spending at record levels. Memory chips are completely sold out for the year.
That's not what you'd see from an industry worried about a short-term shakeout.
And this isn't new information. Private creditors have feared disruption in certain parts of the software sector for months. As early as the middle of last year, some of them stopped lending to software companies.
The public market is finally catching up. And as usual, it's overreacting. Big, tech-driven bull markets are never a straight ride up. They tend to come with multiple double-digit pullbacks.
Those pullbacks feel scary in the moment. But as long as credit remains healthy, they tend to become buying opportunities.
We don't see credit stress today. Lending is steady. Earnings expectations remain firm. Valuations have fallen as fear has increased. That's the setup long-term investors should want.
These are the dips you should be buying.
Regards,
Rob Spivey
March 10, 2026
