Investors can only ignore strong results for so long...
Sure, a narrative can drive stock prices in the short term. But over the long run, returns come from sales growth and higher profits.
Always remember, stock prices eventually follow earnings.
That's why, back in February, Doc wrote to you about the widespread sell-off in software stocks – and the opportunity for patient investors.
To recap, Software as a Service ("SaaS") stocks were hammered because the market was convinced AI would kill many of these companies. The narrative was simple... Why would a company pay millions of dollars each year to use enterprise software when AI could do the same tasks at a fraction of the cost?
Wall Street panicked. One trillion dollars in software market value disappeared within a week. And high-quality SaaS stocks took a beating... even though they were still making massive amounts of money.
Dubbed the "SaaSpocalypse," this market event was all anyone could talk about at the time. But Doc kept a level head and reminded Health & Wealth Bulletin readers to remain calm...
The market is currently in a "shoot first, ask questions later" phase. And a lot of quality software companies that are not going to be replaced by AI are being thrown out with the bathwater.
Yes, there are going to be software businesses that become obsolete because of AI. But many will be just fine since they'll use AI to keep their market share.
Now, the market is finally starting to wake up and realize that SaaS isn't going anywhere.
We can see this through the latest monthly return in the iShares Expanded Tech-Software Sector Fund (IGV)...
As you can see, software stocks just rose by the largest amount in a single month since 2001.
I'll repeat: Stock prices eventually follow earnings. And software companies have been posting strong earnings lately, helping to cool investor fears and put an end to the AI doomsday narrative.
The fatal flaw in the "AI will kill software" thesis was a misunderstanding of what a great software company actually provides. Wall Street was treating software like it's just raw code. It isn't.
For starters, software platforms often hold decades of proprietary customer data, historical transactions, regulatory compliance logs, and customized operational rules. Even if AI can generate similar software, it can't replace the trusted system of record that an organization has built its workflows around.
Plus, switching costs are high. It takes years and millions of dollars to train a workforce on a new system. Once a software product is woven into the daily habits of thousands of workers, it becomes a "toll booth" business. The cost of ripping it out outweighs almost any potential savings.
Most important, we're seeing many software companies use AI to make their products so good that big businesses wouldn't consider switching to a free tool.
Consider graphic-design company Adobe (ADBE). In its most recent quarter, total consumer usage of AI features grew by 45% from the previous quarter. And Adobe's annualized recurring revenue tied strictly to AI-first applications more than tripled year over year.
Adobe reports its next round of earnings next week. We suspect we'll see another quarter of high revenue growth, massive profit margins, and more signs that the business is using AI to become even stickier with its clients.
Doc previously noted that there's going to be a massive buying opportunity for many of the best software names. Of course, you never want to "catch a falling knife" and buy when a stock is still dropping.
However, software stocks are starting to gain momentum right now. Another few quarters of strong results and many of the best stocks are going to rocket off their basement valuations.
In Retirement Millionaire, we bought one of the best SaaS stocks in the market back in April. It was trading around the same valuation as it did during the 2008 financial crisis... despite the fact that it's already using AI to build more tools and cut down on costs.
We're up 13% on this position in just two months. But there are still plenty of gains to come, and the stock is still historically cheap.
Retirement Millionaire subscribers can see our recommendation here.
And if you aren't subscribed to Retirement Millionaire yet, click here to learn more.
What We're Reading...
- From February... "Don't Count Software Out Just Yet."
- Something different: He was a reality show villain. Can he be the mayor of one of America's largest cities?
Here's to our health, wealth, and a great retirement,
Jeff Havenstein
June 3, 2026
