Why the Beaten-Down Software ETF Might Be Your Best AI Opportunity Right Now

The software sector is experiencing what could be a textbook contrarian opportunity. While investors have punished shares of the iShares Expanded Tech-Software Sector ETF (IGV) amid AI disruption fears, the companies inside this software portfolio continue delivering solid financial performance. The 18% decline represents a classic case of the market pricing in worst-case scenarios that may never materialize.

Generative AI has sparked both excitement and anxiety among investors. Yes, the promise of AI-powered automation is real—but the narrative that a single AI tool will obliterate entire categories of enterprise software has become overblown. Software stocks have suffered as a result, offering early adopters a potentially lucrative entry point.

The Market’s AI Panic is Missing the Real Picture

Here’s what’s happening beneath the headlines: investors are so focused on the theoretical disruption risk that they’re ignoring the actual financial results coming from software companies. Revenue growth remains surprisingly robust across the sector, and the earnings multiples have compressed to levels that don’t reflect the underlying business quality.

Think about it from a corporate perspective. Enterprise managers aren’t going to risk their jobs by ripping out proven software systems to replace them with a new AI solution that might save a few percentage points on costs. The switching costs, training burden, and operational risk are simply too high. This is the fundamental assumption driving the sell-off—and it’s increasingly looking like a myth.

Inside the iShares Software ETF: A Tale of Two Categories

The iShares Expanded Tech-Software Sector ETF holds a diversified basket of North American software companies, and it’s worth understanding what’s actually inside. The fund’s heavyweight holdings include some of the AI’s biggest winners: Microsoft, Palantir Technologies, and Oracle together represent about 25% of the portfolio.

These three have managed what many other software companies are achieving but at varying speeds. But the real opportunity lies in recognizing that the other 75% of the fund—companies like Salesforce, Intuit, and Adobe—aren’t about to become obsolete.

The secret many investors are overlooking: most major software providers have already begun integrating generative AI into their platforms. This isn’t a defensive move—it’s actually making these software solutions more valuable. Customers aren’t selecting between “old software” and “standalone AI”; they’re getting enhanced software with AI capabilities baked in. This typically translates to higher revenue per user, not lower.

Palantir’s AI Platform is the clearest example. The company has dramatically expanded its use cases, lowered the barrier to entry, and accelerated sales growth. Similar innovations are quietly moving through the rest of the software ecosystem, even if they’re generating less attention than the headline-grabbing AI companies.

Software Companies Are Already Becoming AI Companies

What separates winners from casualties in this transition isn’t whether they’re disrupted—it’s whether they’re adapting. Most of the companies held by this software ETF are actively embedding AI features into their offerings, making themselves stickier and more valuable to enterprises.

Revenue expansion isn’t slowing; it’s accelerating in different ways. Software providers are moving beyond pure seat licensing into AI-augmented services that command premium pricing. This represents an earnings growth tailwind that the market is currently discounting.

The irony is sharp: investors are terrified that AI will destroy software companies, yet the companies they’re selling today are the ones actually integrating and commercializing AI capabilities ahead of less established players.

Is This the Moment to Buy a Software ETF?

For investors convinced that the current AI-disruption narrative will eventually fade and fundamental business results will reassert themselves, the software ETF presents an efficient vehicle for exposure. Rather than picking individual winners and losers, this fund provides diversified access to a sector that’s simultaneously adapting to AI and maintaining strong financial metrics.

The 18% decline means valuations have reset to more reasonable levels. While past performance doesn’t predict future results—the Motley Fool’s historical data shows Netflix delivered $464,439 on a $1,000 investment from December 2004, while Nvidia returned $1,150,455 on a similar $1,000 investment from April 2005—those examples underscore how dramatically beaten-down sectors can recover when sentiment shifts.

The question for your portfolio isn’t whether AI will disrupt software. It will, in various ways. The real question is whether existing software companies can adapt faster than the market expects—and based on current financial results, they’re doing exactly that.

An ETF focused on the software sector offers the simplicity of diversification without requiring you to handicap individual winners. In a market obsessed with the theoretical risks of AI, real earnings growth and reasonable valuations might be the most contrarian bet available.