Jonah Lupton
CEO & CIO of FirstWave Capital, Long-Biased Growth
Software stocks look set to benefit as the market signals that open-weight models will help software and that AI extinction risk was overblown, with AI instead a net positive for growth and margins in coming years. The cloud software ETF is becoming one of the best-looking charts in the market and is close to clearing $37 resistance and a volume shelf. x.comÂ
Software stocks such as ServiceNow, Adobe, Salesforce, Intuit, Accenture, Elastic and Snowflake face pressure as clients divert spending to supply-constrained hardware. IBM, down 17% premarket on preliminary numbers, said clients in late June shifted quarterly capex toward servers, storage and memory ahead of expected price increases, a reprioritization bigger than it anticipated. That commentary is bad for software names and good for memory, chips and other hardware. x.com x.comÂ
Software stocks may benefit from the AI displacement trade's complete reversal through 2026: instead of AI supposedly displacing traditional software companies, software companies could potentially displace the AI trade itself. x.comÂ
Software stocks are set to rip higher on the news shared in the post. x.comÂ
Cloud SaaS repricing is not stopping anytime soon because AI is moving so fast that no industry is safe. Security stocks such as Cloudflare, Palo Alto Networks, CrowdStrike and Zscaler fell 25% in a few days after Mythos was released, and better models from others are coming soon. Cloud software stocks are down 30% this year and 50% over five years. x.comÂ
The software selloff looks overdone, as AI seems to be creating dispersion rather than killing software. All 13 S&P 500 software companies that have reported so far beat EPS estimates, and software stocks are up about 40% from their April lows. x.comÂ
Software is flexing its muscles, showing AI is not killing the sector. Twilio, Atlassian, Cloudflare and JFrog all showed better-than-expected fundamental strength, setting software up for a strong session. x.com x.comÂ
The rally in US software stocks is really long in the tooth, if anyone is still left who believes AI alternatives run by one- or two-person shops can cannibalize a lot of software. x.comÂ
Software stocks such as Adobe sold off on a threat that was never real: the AI labs' internal plans to compete with them were delusional and never a real possibility. x.comÂ
Software stocks should keep grinding higher as the market reduces the AI fear factor. Much of the software rally since the April lows was just erasing past losses, and many names remain well below their all-time highs. Since those lows, software has risen almost as much as semiconductors with about 10x less noise. x.comÂ
Software stocks are losing their scarcity premium because the price of intelligence is collapsing faster than any technology on record. PC prices took 15 years to fall 90%; LLM prices did it in under three, and quality-adjusted intelligence became nearly free within 30 months. Every SaaS multiple was a bet that writing software stays expensive, and that bet is unwinding five times faster than in the PC era. Companies selling intelligence get squeezed, while those applying it gain. x.comÂ
SaaS will have its time in the sun again, and now, while it is still hated, is the time to pick favorites and build positions. Bearish sector narratives don't last forever, and the view that all SaaS is being disrupted should ease somewhat this summer, though multiples may not return to prior levels. Some SaaS names have little moat against Anthropic and peers, but many, especially cybersecurity and Palantir, are strengthened by the agentic push. x.com x.com x.comÂ
