Why IGV's 18% Decline Could Signal a Major Opportunity in Software

The iShares Expanded Tech-Software Sector ETF (IGV) has slumped 18% from its peak reached in autumn 2025, and the culprit behind this decline is clear: investor anxiety about artificial intelligence rendering entire software platforms obsolete. But here’s where the narrative breaks down—if you look past the headlines and examine the actual financial performance of the companies holding up this ETF, you’ll find something quite different from the doom-and-gloom predictions.

Market Panic vs. Real Numbers: The Disconnect in Valuations

Software stocks across the board have been hammered by a single prevailing thesis: why would any enterprise spend money on specialized software when a single powerful AI tool could do the job cheaper? The logic seems ironclad on the surface, which is precisely why investors have abandoned these positions en masse.

Yet the companies inside IGV continue to demonstrate something investors seem to be overlooking—sustained revenue growth and increasingly profitable AI integrations. The market is discounting genuine business fundamentals in favor of a theoretical threat that, while possible, remains largely speculative. For contrarian investors willing to bet that pragmatism will eventually override panic, this creates a compelling opportunity.

Inside the ETF: Where AI Is Actually Boosting Revenue

The heavyweights driving IGV’s composition include Microsoft, Palantir Technologies, and Oracle, which collectively represent roughly one-quarter of the fund’s total value. These three have arguably benefited most from the AI investment boom—but for a different reason than the current sell-off implies.

The remaining holdings tell a more interesting story. Companies like Salesforce, Intuit, and Adobe sit among the top 10 positions, and they’re the ones receiving the harshest treatment from markets. Yet all three are actively embedding generative AI capabilities into their core product offerings. The result? These tools aren’t replacing the software—they’re making it more valuable. Revenue per user has expanded as customers gain access to new AI-powered features that solve problems their legacy systems couldn’t address. Palantir’s AI Platform exemplifies this trend, rapidly expanding use cases and lowering the learning curve for adoption, which has translated into measurable sales acceleration.

Why Software Migration Won’t Happen Overnight

The concern that enterprises will wholesale abandon their existing software ecosystems for a generic AI alternative fundamentally misunderstands how corporate decision-making works. A company’s IT infrastructure represents years of customization, employee training, and operational dependency. Migrating that entire system to an unproven generative AI solution—even if theoretically cheaper—carries enormous execution risk.

No manager wants to be the one who bet the company on a cost-saving initiative that might destabilize operations. When the financial benefit is marginal and the downside risk is existential, most organizations will choose stability. This is why software companies have maintained pricing power despite investor fears, and why revenue growth across the IGV portfolio remains relatively resilient.

The Performance Evidence: Why Numbers Trump Narratives

For those tracking The Motley Fool’s Stock Advisor recommendations over the years, the pattern becomes evident. When Netflix appeared on their 10 best stocks list on December 17, 2004, a $1,000 investment at that time would have grown to $464,439. When Nvidia made the same list on April 15, 2005, that same $1,000 would have ballooned to $1,150,455. These aren’t cherry-picked outliers—Stock Advisor’s overall average return of 949% significantly outpaces the S&P 500’s 195% return since inception.

The lesson here: contrarian positions that are grounded in fundamental business metrics tend to deliver outsized returns when the market finally recalibrates. IGV’s 18% decline creates exactly this setup.

Is Now the Time to Consider IGV?

An important caveat: Stock Advisor’s analyst team recently identified 10 stocks they view as the strongest buys right now, and IGV didn’t make that cut. The stocks that did could generate substantial returns in the coming years. However, for investors seeking straightforward exposure to an undervalued software industry sector while simultaneously gaining indirect AI exposure through companies actively integrating the technology, IGV offers an efficient vehicle to position for a potential rerating.

The consensus narrative has become increasingly detached from underlying business reality. When that gap eventually closes—and history suggests it will—the timing of your entry matters significantly. An 18% discount to recent highs may prove to be the opportunity investors are currently passing up.