TMTB EOD Wrap: More Software Jitters

QQQs +30bps but the big story today was the continued horrible price action in software with plenty of de-grossing going, with IGV down 3% and breaking below 50D MA. Price action has been horrid for a few weeks now and today’s GPT-5 event just seemed to fan the flames of AI eating SaaS. Here’s Sam just a few days ago:

We described the price action in our weekly:

If NOW — probably the highest quality, best execution name in app sw — cuts through its earnings gap and goes lower on a solid print against low expects - then is any name in application sw land investible? Until price action tells us otherwise, we say no! The WDAY, TEAM, CRM, etc. charts all look similar...These are big names getting re-rated lower. A slower macro environment will only exacerbate the multiple compression in some of these names. Old timers will know how ruthless tech investors can be on multiples where businesses are seen as structurally/secularly challenged — we think many in sw could be entering this black hole.

Post-earning price actin from HUBS (-6% on a beat and raise), DDOG -40bps selling off after being +10%, and FTNT -22% on a miss didn’t help things while the positive news for semis — this time a clearing event after a better than expected outcome from Trump re: 232 sectoral tariffs - continues to shift $ away from sw. It wasn’t too long go when sw names were viewed as the safest, best business models in tech while semis were seen to be cyclical worse quality names — that dynamic has shifted over the past 2-3 years as the AI supercycle hasn’t shown any signs of slowing.

It’s not that AI will definitely cause SaaS to become crud — its just that no one really knows. As long-time tech investors, we are very familiar with the trading dynamic re: secular/structural winners/losers: perception many times trumps reality. Multiples go to extremes. Shoot first, ask later. Price action and narrative become overwhelming and self-fulfilling. Add to that the fuel that this AI supercycle is moving faster than anything anyone has seen and it makes stepping in to defend these names pretty tricky, even though the logical argument doesn’t sound all that misguided.

What’s that argument? Barclays described the glass half full view in a note a few weeks ago: