Software stocks post best month since 2001 as SaaSpocalypse fears ease

Software‑sector ETFs posted their strongest monthly gain since October 2001, rising 21% in May as investors reassessed the impact of AI agents on enterprise software demand [2]. The rally followed a sharp February sell‑off that erased roughly $285 billion in valuations amid fears that autonomous agents would replace seat‑based licenses.

Key takeaways

• The iShares Expanded Tech‑Software ETF (IGV) climbed 21% in May, its best month since 2001 [2].
• Snowflake’s Q1 FY2027 results beat expectations, with revenue up 34% YoY and a $6 billion cloud‑chip deal with AWS, fueling a 37% stock jump [1].
• Okta surged 30% after reporting strong earnings and highlighting the need for identity security amid growing agentic AI [2].
• Bank of America analysts upgraded ServiceNow to “Buy” while downgrading Salesforce to “Underperform,” reflecting divergent views on AI‑driven revenue models [1].
• The sector’s rebound is linked to a re‑pricing of software as infrastructure for AI agents rather than a simple threat to seat‑based licensing [1].

AI agents reshape software pricing narratives

The February “SaaSpocalypse” was triggered by Anthropic’s Claude Cowork, an AI agent platform that many feared would compress demand for traditional per‑seat software licenses [1]. The sell‑off proved temporary; the companies most affected rebounded sharply once panic faded, a classic market pattern that required no new AI thesis [1]. Options data showed heavy call buying on IGV in late May, indicating bullish sentiment beyond short‑term momentum [1].

Snowflake emerged as the rally’s catalyst. After reporting $1.39 billion in Q1 revenue—up 34% year‑over‑year—and raising full‑year product‑revenue guidance to $5.84 billion, the company announced a five‑year, $6 billion commitment to Amazon Web Services for Graviton compute and AI infrastructure, plus the acquisition of Natoma for its Model Context Protocol gateway [1]. Analysts described Snowflake as a “picks and shovels” play on generative AI, arguing that its data‑platform services are essential infrastructure for autonomous agents [2].

Okta also posted a record 30% gain after beating earnings expectations and warning that the shift to agentic AI is driving demand for identity‑security tools [2]. The company’s CEO emphasized that AI agents will become “fundamental infrastructure” for enterprises, reinforcing the view that security software may benefit from the AI transition.

Divergent analyst views on AI‑driven revenue models

Bank of America’s Tal Liani illustrated the sector’s split outlook on May 18. He reinstated coverage of ServiceNow with a “Buy” rating and a $130 price target, citing the platform’s role in orchestrating approvals, permissions, and auditability for autonomous AI workflows [1]. ServiceNow’s Q1 2026 revenue of $3.77 billion, up 22% YoY, supported this .