Wedbush analyst Dan Ives, a prominent technology bull, has challenged the ongoing sell-off in U.S. software stocks, describing it as the most "disconnected" tech trade he has witnessed in the past 15 to 20 years. Ives contends that market fears regarding artificial intelligence (AI) disrupting traditional software companies are exaggerated, leading to what he terms "AI ghost trading," which has unfairly penalized the sector. Data reveals that the iShares Expanded Tech-Software Sector ETF (IGV) has declined 19% year-to-date, contrasting with a 0.4% drop in the S&P 500 index. Ives stated, "Ultimately, it is software—from Salesforce to ServiceNow, to the application scenarios of companies like CrowdStrike and Palo Alto in the cybersecurity space—that is key. I believe this is the most severe sell-off in this sector I have seen in decades."
The analyst suggested that recent developments in AI agents from Anthropic could signal a bottom for software stocks. He maintains that the true value of AI lies within established software platforms rather than pure-play AI companies. Ives explained, "My view is that AI may disrupt some pure software vendors reliant on single products. But the reality is that data and value reside within the tech stack, within the installed bases of companies like Salesforce, ServiceNow, Workday, and Oracle." Ives predicts that 30% of AI spending will ultimately flow to software companies, noting that Palantir has already demonstrated monetization potential. He also anticipates industry consolidation. "When even taxi drivers in Miami are bearish on software, I see that as a bullish signal relative to my outlook for the software sector this year," he remarked.
Notably, Ives and his team at Wedbush indicated in early February that while AI does pose some pressure to traditional software business models in the short term, the market's reaction to this risk is significantly overblown. The current sell-off in software stocks already prices in an extreme assumption of "massive industry disruption by AI," which is not feasible in reality. Ives pointed out that enterprise clients are far more cautious about AI migration than the market assumes. Many businesses are unwilling to expose core data to not-yet-mature new platforms simply to chase AI benefits and are even less likely to abandon software infrastructure built over decades with hundreds of billions of dollars in investment. He stated, "AI is a headwind in the short term, no doubt, but the market is pricing software stocks as if it's 'apocalypse now,' a judgment we see as completely detached from reality."
Wedbush emphasized that current large enterprise software ecosystems contain trillions of data points. Emerging AI companies like OpenAI and Anthropic are unlikely to fully take over these complex systems in the near term, whether in terms of data handling capacity or enterprise-grade security. This implies that AI is more likely to be integrated as an "embedded tool" within existing software platforms rather than replacing them entirely. Wedbush identified Microsoft, Palantir, CrowdStrike, Snowflake, and Salesforce as the top five software stocks to hold during this "software winter."
Other market participants have also expressed views that U.S. software stocks are being oversold. Nvidia CEO Jensen Huang refuted concerns in early February that AI would replace software and related tools, calling such thinking "illogical." Speaking at an AI conference in San Francisco hosted by Cisco Systems, Huang stated that fears of AI diminishing the importance of software companies are misguided. He believes AI will continue to rely on existing software rather than rebuilding foundational tools from scratch. Huang said, "There's a view that software industry tools are in decline and will be replaced by AI... That is the most illogical thing in the world. Time will tell. Whether you are a human or a robot, artificial or general-purpose, would you use tools or reinvent them? The answer is obvious: you use tools... That's why the latest breakthrough in AI is about using tools, because tools are designed to work explicitly."
J.P. Morgan strategists also noted that while it remains uncertain whether traditional software companies will be replaced by AI in the long run, the current market pessimism about AI disruption represents an "overreaction" at this stage. Microsoft and CrowdStrike were mentioned as examples of companies with AI resilience, likely to benefit from AI-driven improvements in workflow efficiency. The team highlighted that high switching costs and multi-year contracts in enterprise software provide a buffer against short-term shocks.
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