Over the past few weeks, there has been surprisingly little excitement on the US stock markets. Since last summer, the S&P 500 has been moving in a remarkably steady upward trend. It was only with the onset of winter that the pace slowed slightly. No panic, no cheers, just a collective frown. The mood? Unusually neutral. Neither euphoria nor apocalyptic mood – Wall Street is in wait-and-see mode.
The Nasdaq Comp Index presents a similar picture. Since the fall, there have been no new record highs, no heroic breakouts. But experienced market participants know that consolidation is nothing more than controlled boredom with a strategic background. Markets are taking a breather – and those who take a breather are not usually planning to retreat.
Beneath the calm surface, however, things are bubbling up. The much-cited AI crash did not happen – instead, it hit the software sector. The well-known software ETF IGV fell back to levels last seen around “Liberation Day” in April.
And AI, of all things, was the trigger. It could hardly be more ironic. With Anthropic’s update of Claude Opus 4.6, investors became painfully aware that AI tools now not only assist, but also write software, debug, and automate dev workflows themselves. AI agents could take over entire areas of responsibility. What sounds like progress to efficiency enthusiasts reads like an existential test for certain business models of software companies. Goldman Sachs even ventured to predict that AI could take up to 60% of the software industry’s profits in the long term. This is not a cosmetic adjustment, it is structural headwind.
According to our own software index, the correction that began in the last months of last year amounted to over 30%. This brings it close to the scale of the interest rate shock four years ago.
In absolute terms, however, the scale is even more impressive: the companies in our software index lost nearly $2 trillion in market capitalization at their peak. Two trillion. That’s more than just a stock market hiccup – it’s a full-blown loss of wealth that was widely anticipated.
The “After Open Action” indicator, which measures the activity of large investors, also shows little romance. Apart from two brief interludes, the blue area dominates on the south side – a clear sign of distribution. Recently, this has even increased in intensity. This may be an initial indication that the selling pressure will soon exhaust itself. However, it is not yet a buy signal.
We should be prepared for the fact that the software industry could be just one of the first sectors to be swept up in the AI revolution. As we have repeatedly emphasized in previous editions of Pretiorates’ Thoughts, not every pioneer survives its own progress. Internet bubble: Netscape has been history for 25 years. Computer bubble: Commodore too. But AI is not a speculative bubble that will burst at dawn. The big players are investing with industrial determination. Amazon, Alphabet, Meta, Microsoft, and Oracle have cumulatively increased their AI budgets for 2026 to over $700 billion. This is not an experiment—it is a strategic realignment on an XXL scale.
However, we investors need to be aware of a small but not insignificant flaw: these five companies are planning investments of over $700 billion, but only have around $446 billion in cash reserves.
The rest will have to be financed – through stock or bond issues. At the same time, share buybacks are likely to be scaled back. It is precisely this buyback mechanism that has been a significant driver of share prices in recent years. When this engine slows down, the soundscape of the market changes. Without many people noticing, the engine is getting quieter…
We have previously learned that institutional investors have been distributing software stocks for some time. AI stocks, on the other hand, continue to show accumulation. So while the whole world is talking about the AI bubble, big investors are continuing to accumulate heavily in the background. How funny…
And then the following still applies: when AI is combined with quantum-based computing power, we are no longer talking about efficiency gains, but about a paradigm shift. Google clearly emphasized last week that this is no longer a distant dream. The company warned governments that the age of quantum cybersecurity had already begun.
The software industry is only the first sector to be pushed aside by the AI revolution. We are keeping our finger on the pulse of developments…
