TLDR
- Dan Ives of Wedbush Securities characterized the software stock selloff as the “most disconnected” technology trade he’s witnessed in two decades
- The iShares Expanded Tech-Software Sector ETF has plummeted 19% year-to-date, significantly underperforming the S&P 500’s 0.4% decline
- According to Ives, concerns about AI eliminating traditional software companies are exaggerated
- The analyst forecasts that 30% of artificial intelligence investments will benefit legacy software companies including Salesforce, ServiceNow, and Workday
- Recent agent technology launches from Anthropic may indicate software stocks have reached their floor, Ives suggests
Dan Ives, a prominent analyst at Wedbush Securities, delivered a strong rebuttal to the software sector’s sharp decline during his Tuesday appearance at the Future Proof conference on CNBC. He characterized the current market dynamics as the “most disconnected” tech sector trade he’s observed in the past 15 to 20 years.
Year-to-date performance shows the iShares Expanded Tech-Software Sector ETF sliding 19%. Meanwhile, the broader S&P 500 has declined a modest 0.4% during the identical timeframe.
The selloff stems from what Ives termed an “AI ghost trade”—a narrative suggesting artificial intelligence will obliterate conventional software enterprises. Ives maintains this concern is dramatically overstated by market participants.
“It’s ultimately software that the use cases from Salesforce to ServiceNow to ultimately cybersecurity is gonna protect the CrowdStrike, Palo Alto and others,” Ives said during the interview.
His thesis centers on established software platforms holding the genuine AI value proposition, rather than emerging AI-focused enterprises. Ives believes the extensive data repositories and customer bases cultivated by firms such as Salesforce, ServiceNow, Workday, and Oracle represent the genuine infrastructure for AI’s commercial expansion.
Why Ives Thinks Software Will Win the AI Race
The Wedbush analyst projects approximately 30% of total AI-related expenditures will ultimately benefit software enterprises. He highlighted Palantir as a proof point demonstrating successful revenue generation in this domain.
Ives also referenced recent product announcements from Anthropic regarding its agents technology as a potentially bullish indicator that software equities may have reached a market bottom.
“My whole point is that, yeah, is it gonna disrupt pure play software one trick pony, some vendors? But the reality is the data, the value, it’s in the stacks,” Ives said.
Additionally, Ives anticipates increased merger and acquisition activity throughout the software industry as challenging market conditions persist.
Market Sentiment and ETF Data
The iShares Expanded Tech-Software Sector ETF maintains approximately $10.88 billion in market capitalization. Current valuation metrics include a price-to-earnings multiple of 41.43 and a price-to-sales ratio of 20.24.
From a technical analysis perspective, the ETF’s 50-day moving average stands at 92.27, trailing its 200-day moving average of 105.22. This configuration indicates ongoing bearish momentum.
With a beta coefficient of 1.3, the ETF demonstrates greater volatility compared to the overall market. Its current volatility measurement registers at 27.18.
Despite recent price weakness, the fund maintains a robust 35.2% return on equity, while its Altman Z-Score of 20.35 indicates strong financial health among portfolio companies.
Ives employed a memorable metaphor to illustrate his contrarian stance: “Right now, the Miami cab driver is bearish in software, and I think that’s a bullish sign relative to where I see software this year.”
Historical performance data shows the iShares Expanded Tech-Software Sector ETF delivering 18.97% revenue growth over a three-year period, while maintaining an impressive 74.37% gross profit margin.
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