Don't Count Software Out Just Yet
The message the market sent while obliterating software stocks around the world this month is unmistakable...
No sector is safe from a sudden reset or quick repricing.
The sell-off started a couple weeks ago when artificial-intelligence ("AI") company Anthropic released new features for its Claude Cowork tool. The groundbreaking AI agent can automate tasks for data analysis, marketing, sales, and legal work that previously could only be done with software.
Now, the market thinks that AI will replace a lot of software offerings.
That concern is what prompted a huge selling spree and sent many software stocks down to recent lows...
Take FactSet Research Systems (FDS), for example. FactSet consolidates market data to provide financial insights for investment managers, hedge funds, and investment bankers.
About 75% of the top 50 global investment banks use FactSet. And 95 of the top 100 asset managers use it as well.
Here at Stansberry Research, a lot of analysts use FactSet every day to help with their equity research. And just about every analyst I talk to says that they cannot imagine a world where they would cancel their FactSet subscription.
Overall, FactSet is a business well entrenched in the financial world. The data the company provides is absolutely essential for most professionals' day-to-day work. But the market doesn't care...
It's worried that AI agents will soon be able to do the heavy lifting of data research for free... or at least for a fraction of what FactSet charges.
As a result, FactSet is down more than 60% since its high in late 2024. Take a look...
And even a blue chip like S&P Global (SPGI) has been caught in the crossfire. Some investors believe the company is doomed because its data business will be replaced by AI.
This is despite the company also running the famed S&P 500 Index – which is synonymous with "the market" – and having one of the biggest moats of any business in the world with its bond-rating division.
S&P Global is off its highs by 27%. You can see the sharp drop-off below...
Software companies like Adobe (ADBE) and LegalZoom (LZ) are also near lows. Plus, the iShares Expanded Tech-Software Sector Fund (IGV) has shed 31% from its highs.
We could go on and on. This sell-off has claimed a long list of victims. But there's one important thing for you to remember throughout the chaos...
Just because investors are panicking about AI replacing software doesn't mean they're 100% right.
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.
Even Nvidia (NVDA) CEO Jensen Huang agrees with this. He recently pushed back against the market panic and said that AI replacing software tools is "illogical" because AI still depends on software infrastructure to function.
So I think there's going to be a massive buying opportunity for many of the best software names.
In my Retirement Millionaire newsletter, we're waiting for the dust to settle. I've talked before about how it's never the best strategy to try to catch a falling knife. Even if a business is ultra-cheap, it can always get cheaper.
The best investors wait for an uptrend to buy beaten-down companies. That's what we're doing with software stocks.
We're very excited to add a couple of high-quality names to our portfolio at basement prices... when the time is right.
In the meantime, you can still join us at Retirement Millionaire to gain access to the best investment ideas today. We're constantly poring through the market to uncover solid, cash-generating businesses with long-term growth potential.
Our focus isn't on hype or fleeting trends... It's on building a portfolio of resilient companies that can compound your wealth steadily over time. You can learn more here.
What We're Reading...
- Something different: In reviving the All-Star Game, Victor Wembanyama furthers his case as the NBA's next face.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
February 18, 2026