SaaS Stumple

Week Ending: February 6, 2026

SaaS Stumble

Technology Software Index*

This week, software technology stocks saw a 12% drawdown as of Thursday, even as major hyperscalers announced stellar revenue growth and higher-than-expected capital expenditure projections. Why? We can name a few reasons. First, the debut of Claude’s AI agent bot, which can operate independently in browsers, heightened fears that AI will replace traditional software technologies, particularly as rising hyperscaler spend is expected to improve AI performance. Second, investors are increasingly concerned that AI investment may not generate sufficient revenue to justify the spend. However, we have a more positive spin on both stories. First, rather than replacing traditional software, AI agents may lead to greater software use, not less. Second, we are not yet seeing an oversupply of data centers. Hyperscalers continue to report unmet demand for compute (i.e., insufficient data center and semiconductor capacity), which is critical for both training frontier AI models and running existing chatbots. Put differently, if demand for compute to run chatbots still outstrips supply, imagine the compute required to power an army of agents running 24/7—each using at least four times as much compute as chatbots.

Total Returns by Asset Class

Highlights of the Week:

Software issuers exposed to AI disruption have been in the crosshairs of investors. The broadly syndicated loan and private credit markets are more vulnerable to AI disruption because technology issuers make up more than 20% of each market, yet they constitute only 5% of the high-yield bond market. While we haven’t seen signs of contagion, default cycles are often sector-driven, and the next cycle will likely concentrate in the asset classes most exposed to the problem sector.