The software sector is bleeding out in a way we literally haven't seen in 25 years. The IGV software ETF just booked an 8-day straight losing streak. Its longest since its inception back in 2001. Wiping out nearly 20% from its peak in just over a week. This isn't a normal market correction or a healthy re-rating. This is an aggressive, programmatic liquidity flush that has completely detached from how these businesses are actually performing.

I mean just look at mega-caps like Microsoft and Meta. They are trading like highly volatile meme coins right now, shedding almost 20% of their market caps in under two weeks on absolutely zero bad news. It makes zero sense, and it shows how broken the current market mechanics are.

When you actually look at the actual data you can quite easily find out that the main bear arguments fall apart by looking at the actual filings for majority of these SaaS companies.

1. The "AI is going to kill SaaS" bear case is flatlining in the data

For the past year, the biggest bear argument has been that generative AI, custom models, and autonomous software agents will destroy traditional seat-based software and trash vendor margins.

The problem? That theory isn't showing up anywhere in the earnings reports.

• The Organic Growth Reality: Organic growth hasn't disappeared. Top software companies are still holding Net Revenue Retention (NRR) rates between 110% and 118%+. If your NRR is over 110%, it means your existing enterprise customers are spending more money with you year-over-year, before you even add a single new customer logo.

• AI is Making Deals Bigger: AI is actually acting as an expansion tool, not a killer. Companies aren't mass-canceling their enterprise software; they're paying premiums to get native AI features, custom workflow add-ons, and new automated modules integrated into what they already use.

• The Valuation Disconnect: Just three weeks ago, software finally started to bottom out after a brutal 10-month lag behind the rest of tech. We saw beaten-down names rip 30% to 50% in a couple of weeks, which made complete sense given their strong top-line growth, steady churn, and solid operating margins. Now, that entire fundamental floor has been wiped out in days for absolutely no operational reason.

2. Software has become the market's ultimate liquidity ATM

The price action this past week shows how broken the fund flows are. Software is seeing massive distribution volume even on green-candle, net-buyer tape. It's basically being treated as a cash donor pool for everything else.

• Downside Amplification: When the Nasdaq pulled back a standard 7% and the S&P 500 dipped 5% this past week, high-quality software names didn't just follow. They got absolutely assassinated for 20% to 30% drawdowns even after having had massive drawdowns whilst overvalued tech that had already gone up 100-200% this year dropped a laughable 15-20% in the same time period

• The Disconnect in Action: The absolute absurdity of this was on full display yesterday. After the news hit that Trump canceled the planned airstrikes, the indices staged a massive 1.5% to 3.5% risk-on rally. Semiconductors logged their best day since April 2025. Meanwhile, the software basket finished red, above their lows but meaningfully underperfoming a rally of such magnitude. When the market panics, software crashes. When the market rips, software gets left behind. This all doesn't make any sense. It has been become very clear that fundamentals mean less and less for each year now. Most stocks seem to be just about hype, momentum and narrative. There can be companies delivering earnings that disprove the bear cases people have that still get punished ridiculously by Wall Street and retail investors. The average person in the stock market has little knowledge and many buy on hype and momentum. Which makes it impossible for a hated sector like the SaaS names to get any respectfull price action.

• Where the Cash is Flying: Capital isn't leaving tech because the sector is broken. It's being forcefully dragged out of highly profitable, cash-flowing software names to fund crowded momentum trades elsewhere. Institutional desks are aggressively raising cash for massive block allocations. Like the heavily oversubscribed SpaceX IPO or just chasing the semiconductor train. Software is literally the ATM funding the rest of tech right now. Its genuinley mind blowing how illogical and irrational this is by the market. You can hardly find a more irrational period for a single sector in the past few decades.

3. Hype vs. Hard Free Cash Flow (FCF)

For the past two years, the market has completely thrown out fundamental analysis to chase raw momentum and hype narratives.

|Metric|Premium "AI Bottleneck" Hype Stocks|Liquidated Public SaaS Basket| |:-|:-|:-| |Valuation Multiples|Priced for perfection; factoring in a flawless decade of execution.|Compressed down to historical multi-year lows.| |Profitability & FCF|Unprofitable or razor-thin margins; incredibly capital-intensive.|Massive FCF yields and pristine 70-80% gross margins.| |Growth Profiles|Driven by non-recurring hardware infrastructure buildouts.|High-visibility, highly predictable recurring subscription revenue.|

The market is aggressively punishing software companies that are delivering accelerating top-line growth at their fastest sequential pace in years, while simultaneously rewarding speculative infrastructure plays that lack any structural moat or recurring free cash flow visibility. A lot of these hype growth companies are receving valuation premiums that won't reflect in the actual business before in 3-5 years time. Companies with little growth or practically no revenue getting multi ten billion dollar market caps because some influencer call and preaches about it being a "bottleneck".

4. The brutal toll of the opportunity cost

For long-term investors holding high-conviction software portfolios, this environment has introduced a painful amount of opportunity cost. Buying the dip over the past 8 months has repeatedly dried up my capital, because algorithmic selling just keeps digging new floors. There has been so many rounds of "SaaS apocalypse" and so many dips in the past half a yeat that it is starting to become laughable. It sinks and sinks lower. Companies that used to get premium valuations now trading at 8-12x forward earnings for the upcoming year. It doesn't matter if they triple beat, raise or beat on every single metric. They still collapse 10-20% after earnings. I mean what can the average person even ask for anymore. Maybe I should just buy overvalued tech companies with no justification for their current values and become rich. The amount of shitcos that have probably retired people on pure memes is mind blowing.

It is incredibly draining to watch highly profitable business models with clean balance sheets get obliterated day after day while speculative momentum names run completely unchecked. But history has proven that the market cannot remain completely detached from corporate cash flows forever.

The sentiment is just too broken to last

When a sector becomes this universally hated. Where a company can post a flawless, triple-beat quarter and still catch an automatic 4% selloff. It signals close to some sort of peak capitulation. The volume the Igv software index and these individual names have received for the past six months has to be getting close to some kind of bottom. The volume has been 3-5x the average monthly volume than all of the years and decades before.

Enterprise software is in my opinion currently the most fundamentally mispriced asset class of the decade. For those holding long-term allocations in businesses with real net expansion, strong competitive moats, and structural cash flows, the actual business thesis hasn't changed. The market is currently being driven entirely by narrative and short-term liquidity constraints. But eventually, the math should win. This seems to be a fitting quote for the current situation. "In the short run, the market is a voting machine but in the long run, it is a weighing machine." - Benjamin Graham

What are your general thoughts regarding this topic? Are you completely stepping away from the software dip, or are you continuing to accumulate these heavily compressed cash flows despite the absolutely broken tape? I will keep adding to and averaging down on some of these software companies that I mean are undervalued and quite cheap frankly.