Why IGV Is Falling as AI Threatens SaaS Stocks

Why IGV Is Selling Off With Software Stocks

This week has not been a good one for many tech stocks, especially SaaS (software as a service) and other types of software companies. A symbol of this trend is the decline of the iShares Expanded Tech-Software Sector ETF, a US-listed ETF with a focus on SaaS.

This sharp downturn comes on top of a similar decline in the broader market, including cryptocurrencies, with Bitcoin down 18.98% year-to-date at the moment of writing of this article, and extreme volatility in assets like gold and silver, with silver experiencing a record-breaking -31% in one day on January 30th.

Behind the market turmoil is a general confusion and uneasiness about the future. From political scandals (government shutdown, Epstein list publication) to geopolitical tensions (Venezuela, Greenland, Russia, China, Iran) and massive investments in AI, market participants are definitely nervous and in a volatile mood.

But what was the trigger for the IGV decline, and how likely is it to persist?

Why Software Stocks Are Suddenly Under Pressure

A Red Week For Software

Lately, tech and software news have been dominated by AI-related news, from new upgraded LLM models coming out regularly to upcoming self-driving cars, robotics systems, etc. Overall, this has given a massive boost to tech companies’ valuations, with none benefiting as much as NVIDIA (NVDA -3.41%), which became the world’s most valuable company.

However, as AI becomes more and more able, software providers might be exposed to a new risk, where AI and “vibe coding” entirely replace the existing software stack. The central idea is that internal projects or new competitors could emerge with a much better cost structure and outcompete the incumbent software giants, especially in the SaaS space.

As most large corporations spend millions on software licenses, if AI technical capability really matches these expectations, this could indeed become a prime target for cost-cutting, at least in theory.

The Main Victims

While the broader software segment suffered this week, some stocks are down more than others.

For example, videogame engine provider Unity (U -3.59%) has been falling almost 40% in the last six trading sessions and -45.7% year-to-date, heading dangerously back to its all-time low when the stock suffered from a series of scandals about new terms and conditions.

Among the other large declines year-to-date, we can mention Braze Inc. (BRZE +2.85%) (-45.7%), HubSpot (HUBS -0.5%) (-39.2%), Klaviyo (KVYO +2.93%) (-38.4%), and Atlassian (TEAM +0.04%) (-35.0%).

Other forms of services that could be disrupted by AI were also crashing—for example, the information giant Thomson Reuters (TRI +1.75%), owner of the Westlaw legal database.

IGV Index Decline

IGV has seen its price decline every session of this week, with -18.3% year-to-date. This is not surprising as the ETF’s top holdings are focused on enterprise SaaS, with only Microsoft also developing its own AI models, but which experienced a steep decline as well for its own reasons.

Source: iShares

The top 11-20 holdings of the ETF are similar, with some top videogame developers like Electronic Arts (EA -2.26%) and Take-Two Interactive (TTWO -5.38%) that could be disrupted by AI tools making AAA games cheaper to produce.

It also contains Strategy, the software & Bitcoin holding company that has seen its stock decline in tandem with Bitcoin’s price.

Source: iShares

It seems that when it comes to software, the market has, for now, adopted a “guilty-until-proven-innocent” approach, preferring to assume AI will hurt these businesses.

As the market has a moment of panic about AI-driven disruption of the SaaS model that has dominated the industry for almost two decades, it makes sense that IGV struggled, with Microsoft and Strategy bringing it further down.

The Anthropic “Claude Crash”?

Why AI Is Now a Threat to the SaaS Model

It has been an often-repeated investing mantra these past years that “software is eating the world.” But it might be that now “AI is eating software.”

The trigger for this realization by markets was when Anthropic released new plug-ins for its Claude Cowork agent last Friday, automating tasks across legal, sales, marketing, and data analysis.

Cowork, built on the Claude Agent SDK, is a more accessible version of Claude Code.

So far, it is not proven that the latest Claude release can really replace SaaS offerings, but the mere idea that it could has put a damper on investors’ enthusiasm for the sector.

Is AI Forcing a SaaS Valuation Reset?

An extra factor is that the software sector has been rather richly valued in the past few years, with valuations only making sense with plenty of growth ahead.

So AI does not need to fully replace software, just consume a lot of that future growth to trigger a repricing. In that context, this week’s decline might make sense, even if the fear of AI driving software down is overblown: AI just needs to permanently dampen future growth and absorb part of the market to justify lower stock prices.

This is not to say that SaaS valuations were necessarily a bubble, but certainly, pricey valuations tend to correlate to high volatility.

The Broader Picture

It seems that a general sobering of markets is also behind this recent downturn.

For example, Microsoft went down 11.7% on Thursday, January 29th, over concerns about the company’s cloud sales (Azure). It was due to the fact that the massive capital expenditure in cloud and AI data centers might not be met with corresponding growth in revenues. It was also revealed that nearly half of Microsoft’s cloud backlog comes from OpenAI, which might be unable to fulfill this commitment.

Overall, the enthusiasm about tech and AI has so far lifted all boats, from software to model developers to cloud providers. Now, a more sober period seems to start, where markets are more rationally sorting out the winners and losers of AI, and which investments actually make sense financially.

What the IGV Decline Means for Investors

It should be noted that even with its sharp recent decline, IGV is only down to its level of July 2024 and barely below a previous peak in November 2021. So while this certainly gives back some gains, this is far from a massive crash in a long-term perspective.

Still, markets are starting to question the narrative that AI will be a net positive for all tech & software stocks, especially those that have just superficially rebranded themselves as “AI companies,” while actually staying vulnerable to disruption by leading AI like Claude.

So investors might take the occasion for a deeper look into their portfolio and figure out who, in a decade or so, will be the real beneficiary of AI deployment, and who might turn into the forgotten giants of the “previous” era, the way AOL or Yahoo are today considered compared to their dot-com bubble era valuations.

Investing In Anthropic

Anthropic is, for now, a privately listed company, making it not accessible to most investors; to be more exact, it is registered as a Public Benefit Corporation (PBC).

This means that most investors will only be able to access Anthropic ownership indirectly through companies that have invested in it.

Two of the largest investors in the company are Amazon (AMZN -2.36%) and Google (GOOGL -1.96%). Amazon has been providing $8B investment and AWS infrastructure, while Google has been providing $3B and access to up to 1 million TPUs (Tensor Processing Units, a form of AI-centered hardware).

These investments ranked Anthropic as #2 among the largest private AI companies, with a valuation reaching $350B in January 2026, right behind OpenAI (estimated at around $500B), and above xAI’s $250B valuation.

Of course, it is likely that the value of Claude will rise further, especially if investors believe it can grab a significant part of the value added from enterprise software controlled by leaders like Adobe (ADBE +2.86%), Oracle (ORCL -5.15%), or Salesforce (CRM +1.56%).

Overall, retail investors interested in Anthropic will mostly have to decide if they prefer to buy exposure to Amazon’s e-commerce and AWS, or Alphabet/Google’s own AI Gemini, search monopoly, and presence in quantum computing.

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