The US software sector has faced a brutal start to 2026, with the iShares Expanded Tech-Software Sector ETF crashing over 25% as investors grapple with what analysts term the "AI paradox." The core fear is that generative artificial intelligence could dismantle the traditional seat-based pricing model of Software-as-a-Service (SaaS) companies, pushing the entire group into a bear market.
This sell-off was partially triggered by AI startup Anthropic's integration of its Claude Cowork tool into legacy platforms, which sparked fears of automation eroding traditional software revenue streams. However, a subsequent bounce on Tuesday suggested the initial panic may have been "overdone."
Amid the wreckage, Jefferies analyst Brent Thill is flagging specific "AI-proof" giants as generational buying opportunities. Intuit (INTU), despite a staggering 45% decline year-to-date, remains a top conviction pick. Thill argues skepticism over AI automating tax and bookkeeping ignores Intuit's massive proprietary advantage: 40 years of financial data from roughly 100 million customers. The company has already deployed 80 different AI model variations to personalize workflows, making its platform "incredibly sticky" in an era where "data is the new oil." Thill labels Intuit a "more durable vendor," asserting it's more cost-effective for businesses to use its refined ecosystem than to build custom AI tools from scratch.
Salesforce (CRM) is another highlighted winner, even after shares slid more than 29%. Jefferies contends Salesforce is "best-positioned among apps vendors to deliver on AI agents" rather than be replaced by them. Its pivot toward autonomous AI agents within Slack and its CRM suite is seen as a strategic self-disruption. The recent Anthropic update integrating Claude Cowork directly into Slack validates this "incumbent advantage," positioning Salesforce as the "essential host" for advanced AI tools.
In contrast, Workday shares fell about 10% premarket after forecasting weaker-than-expected revenue, with the stock down roughly 40% year-to-date. The company projected fiscal 2027 subscription revenue between $9.93B and $9.95B, below the expected $10B, and adjusted operating margins also missed estimates. CFO Zane Rowe cited prioritization of investment in its "agentic AI roadmap" as weighing on near-term margins, a concern reflective of the broader sector's dilemma between protecting profitability and investing to stay competitive.
Despite stronger-than-expected Q4 results, Workday's outlook disappointed. Co-founder and returned CEO Aneel Bhusri pushed back on the AI displacement narrative, arguing AI enhances rather than replaces complex HR and ERP systems which require transaction precision, security, and regulatory compliance. However, over half of the covering analysts cut their price targets, with Piper Sandler noting the guidance "does not allay investors' general concerns for app layer names" amidst the AI debates.
