Earlier this year, software stocks around the world plummeted.
The launch of Anthropic’s Claude Cowork was one of the most visible triggers. Its capabilities proved AI was moving beyond a “nice, but not good enough” tool into something with real-world business use.
After all, if AI can now design, analyse and automate work, wouldn’t that make most of today’s software redundant?
Yet, less than six months later, the tech-heavy Nasdaq is back at record highs, and many of the battered software stocks have not only recovered, but moved beyond where they were before the sell-off.
Today, we’re diving into the lessons learned from months past.
The goal: learn to tell when a sell-off reflects genuine business risk, and when it’s actually creating an opportunity by assuming the worst.
What happened in the markets this week?
🤖 OpenAI to IPO next year (Reuters)
- What happened: OpenAI CEO Sam Altman reportedly told staff that the company expects to go public within the next year after recently confidentially filing for a US initial public offering.
- How it impacts investors: A potential OpenAI listing could reshape AI sector valuations and attract significant capital into listed AI companies. It may also increase investor focus on businesses supplying AI infrastructure and software.
- Next steps: OpenAI is another big name joining listed markets. SpaceX debuts on the Nasdaq today.
₿ Bitcoin sell-off fuels renewed bets on crypto stocks (CNBC)
- What happened: Bitcoin briefly fell below US$60,000 for the first time since October 2024. The sell-off triggered heavy options trading in crypto-linked stocks including Strategy and Coinbase.
- How it impacts investors: The activity shows that crypto-related equities remain highly sensitive to moves in digital assets and investor sentiment. Continued volatility could spill over into companies and ETFs with significant cryptocurrency exposure.
- Next steps: Explore a curated list of crypto-related stocks and digital asset themes on Simply Wall St.
👔 Frasers bids for full ownership of Hugo Boss (Reuters)
- What happened: Frasers Group launched a €38 per share cash offer to acquire the remaining Hugo Boss shares it does not already own, valuing the deal at around US$2.3 billion. Hugo Boss said the approach was unsolicited and that its board would review the proposal.
- How it impacts investors: The bid highlights how strategic buyers may be targeting undervalued consumer brands across Europe. It could also increase expectations for further consolidation within the retail and apparel sector.
- Next steps: Review Hugo Boss’s company report. The takeover could be a signal for investors.
🎢 Comcast is bringing Universal Studios to Europe (Yahoo Finance)
- What happened: Comcast plans to invest over £6 billion to build Universal UK Resort. Construction expected to support thousands of jobs before opening in 2031. The UK government will also contribute infrastructure funding to support the project.
- How it impacts investors: The investment reflects continued confidence in long-term demand for entertainment and tourism despite economic uncertainty. It also expands Comcast’s global parks business beyond North America and Asia.
- Next steps: Simply Wall St’s DCF model currently values Comcast at 73% undervalued. Review Comcast’s report to determine whether this news is expected to change this valuation.
💊 Novo and Lilly battle for the next phase of the obesity market (CNBC)
- What happened: Novo Nordisk and Eli Lilly highlighted growing demand for their obesity pills while preparing for expanded Medicare coverage beginning July 1. Both companies are also advancing new obesity treatments as competition in the GLP-1 market intensifies.
- How it impacts investors: Expanded insurance coverage could significantly increase demand for obesity treatments while intensifying competition between pharmaceutical leaders.
- Next steps: Compare leading healthcare companies and obesity drug developers using Simply Wall St’s Stock Screener to scan for other big names.
What brought the ‘SaaSpocalypse’ to markets
The concerns behind the sell-off were not entirely unfounded.
Prior to the AI era, enterprises adopted the use of multiple tools because building them proved too costly:
- Adobe (NASDAQ:ADBE) would help creatives design (Disclosure: I own shares in Adobe).
- Atlassian (NASDAQ:TEAM) would help with project management and documentation.
- Salesforce (NYSE:CRM) would help sales teams manage customers.
These companies grew by employing the “SaaS” business model: selling a single product at scale through a subscription model that charged per user.
The rise of AI tools threatened that very setup due to multiple reasons:
- AI capabilities now make it viable for some companies to custom-build tools in-house.
- AI tools can now match the capabilities of some SaaS products, some even multiple . Gen AI for example can now take on content creation across multiple formats.
- AI tools charge based on usage (i.e. tokens) rather than per user , making them comparatively more cost-effective for many enterprises.
- AI agents simplify systems and workflows. The user now just has one touchpoint instead of having to switch between multiple tools. This increases efficiency through both a lower learning curve and less time spent multitasking.
So why did software bounce back?
While the AI threat is real, markets later realized one key thing: AI wouldn’t kill software – it needs software.
Nvidia’s CEO Jensen Huang in particular drove that realization. This quote essentially summarizes the thesis:
"Because there will be so many agents, the world will not be limited by the number of people… Therefore, those agents are going to use more tools than ever."
And his words echo Nvidia’s actions. Announced at last month’s COMPUTEX conference, the world’s leading AI infrastructure developer is now preparing for a world with AI agents with new advancements:
- Nvidia Vera CPU: Custom CPU built for AI agents that Nvidia expects will soon become the largest users of computing
- Agent Toolkit and Openshell: To support enterprises in running autonomous agents safely
- Nvidia DGX Station: A new desktop AI supercomputer for running agents on Windows, with the capability to be used across every industry
Huang also announced that Nvidia was working with Adobe (one of the most sold down stocks in the SaaSpocalypse) to reinvent Adobe’s Photoshop and Premier to be agent-friendly, bringing another proof point to the ‘AI-needs-software’ argument.
How to tell a real business risk from a fear-driven market
Looking back now, the SaasSpocalypse may have seemed silly. But hindsight is 20/20 – and the sell-off brings about principles investors can remember the next time markets are clouded by fear.
1. Determine whether the market is exaggerating
When a new tech is developed, the market tends to skip straight to the worst case scenario. The SaaSpocalypse for example went from "AI is capable" to "software is finished" without stopping to ask whether that logic actually held up.
Salesforce is a good example. Its stock is down 32% year-to-date despite the business growing revenue at 13% year-over-year. Agentforce, its AI agent platform, hit annualized revenues of $1.2 billion last month.
That’s not to say Salesforce is risk-free from AI developments, but many believe that despite potential threats to its SaaS business model, its current valuation overestimates the impact.
💡 In this example, the more useful question would’ve been: what would actually need to happen for this business to stop working?
2. Narrative can move faster than fundamentals
Markets are generally forward indicators. But sometimes they price a story about the future well ahead of the evidence.
Adobe reported 12% revenue growth, a Q1 record for operating cash flow, and authorized a $25 billion buyback. The market had priced it at 11x forward earnings, as if Creative Cloud was in terminal decline.
On top of earnings results, Adobe has publicly presented strategies to remain relevant (and even grow) amidst the AI disruption – information investors can use for future forecasting.
💡When a company keeps doing fine while the stock does not, the question worth asking is whether the market has new information or just a new fear.
💡This week’s weekly picks include a fundamental case for Adobe.
3. Watch out for “circular selling”
Sell-offs can develop their own gravity. Institutions trim holdings, algorithms trigger on momentum, retail investors see the chart and join the exit.
Michael Burry, the investor famous for calling the 2008 housing collapse, put it plainly when he turned bullish on software during the rout. He wrote that the declines had become "accelerated extreme declines arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt."
In other words, stocks were falling because stocks were falling.
💡When seeing that kind of divergence, ask whether there is fresh news driving each leg down or whether the market is just reacting to itself.
4. Broad sell-offs punish good and bad companies together
During the SaaSpocalypse, even Microsoft (NASDAQ:MSFT), one of the world’s most AI-integrated companies, sold off alongside the rest and is still down 15% YTD. Nvidia, despite being the primary infrastructure backbone of the AI revolution, also fell 10% in the first week of February when fear gripped the markets most.
Neither business had deteriorating fundamentals; they were simply caught in the same narrative current.
💡 The useful question isn't "is this sector under threat?", but rather “which companies have the business model, the balance sheet, and the adaptability to navigate it?"
5. Work out how the disruption would realistically work
And finally, the lesson behind what the rebound showed us – asking how AI would actually replace software, not just whether it could.
Enterprises can't flip a switch; years of integrations, compliance requirements, and institutional workflows are baked into existing tools.
And as Huang stated, more AI agents means more software usage, not less. Agents need interfaces, APIs, and platforms to operate within.
💡It’s easy to get swept in market sentiment, but modeling the realistic scenario of a disruption can help investors ground themselves.
Looking forward: Your contrarian checklist
To summarize today’s learnings, here’s a checklist investors can use for future themes.
- Is this a headwind or a death sentence? Every business faces competition. The question is whether the threat changes the unit economics permanently, or just raises the difficulty level.
- Is the bearish view already crowded? When everyone is already positioned for the worst, there's no one left to sell. Simply Wall St’s community tends to pick these signals up, so it may be worth checking in regularly.
- Is the business still doing fine while the stock isn't? Check revenue, margins, and cash flow against the share price. That gap is where opportunity can hide. Simply Wall St’s company reports can help with this.
- What does the disruptor actually need to win, and does this company supply it? AI needed chips, infrastructure, and software to function. The companies "threatened" by AI were often the same ones it depended on. This Honeywell narrative is a good example of this type of analysis.
- Is there a realistic catalyst to flip the story? Being early is indistinguishable from being wrong. Identify what would have to happen for the market to change its mind, and whether that's plausible within a reasonable timeframe.
The Insight: The crowd's death sentences rarely stick
The next sell-off will have a different name and a different story. But the structure will be the same – a plausible threat, a narrative that outruns the evidence, and prices that detach from reality before snapping back.
The investors who do well in those moments aren't the ones with better information. They're the ones asking better questions, separating what the market fears from what the business shows .
That's the repeatable skill for investors. Software was just the latest example.
Key events next week
Tuesday
- 🇯🇵 BoJ Interest Rate Decision
- Forecast: 1.0%, Previous: 0.75%
- Why it matters: A BoJ hike would narrow the interest-rate gap between Japan and other major economies, which matters for the yen and carry trade positioning .
- 🇦🇺 RBA Interest Rate Decision
- Forecast: 4.35%, Previous: 4.35%
- Why it matters: Markets expect the RBA to hold rates steady, after a series of rate hikes.
Wednesday
- 🇬🇧 Inflation Rate YoY
- Forecast: 3.1% , Previous: 2.8%
- Why it matters: A rebound in inflation could reduce expectations for near-term BoE rate cuts and keep pressure on UK borrowing costs.
Thursday
- 🇺🇸 Fed Interest Rate Decision
- Forecast: 3.75%, Previous: 3.75%
- Why it matters: Markets expect the Fed to hold rates, so the main focus will be on the statement, projections and Powell’s press conference.
- 🇬🇧 Unemployment Rate
- Previous: 5.0%
- Why it matters: A weaker labour market could increase pressure on the BoE to cut rates, while sticky wage or employment data could delay easing.
Friday
- 🇯🇵 Inflation Rate YoY
- Forecast: Not shown, Previous: 1.4%
- Why it matters: Japan inflation is key for BoJ policy. Stronger inflation would support further rate hikes.
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Simply Wall St analyst Mitch Lawler and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. Any comments below from SWS employees are their opinions only, should not be taken as financial advice and may not represent the views of Simply Wall St. Unless otherwise advised, SWS employees providing commentary do not own a position in any company mentioned in the article or in their comments.We provide analysis based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
