Key Takeaways
- Artificial intelligence (AI) is expected to have a significant impact on the software industry, but it could be a major growth catalyst for businesses.
- The iShares Expanded Tech-Software Sector ETF (IGV) has dropped 18% from its high reached last fall due to concerns about AI’s negative impact on software companies.
- The ETF’s components, including Microsoft, Palantir Technologies, and Oracle, are well-positioned to benefit from AI, with many software providers working to integrate AI capabilities into their offerings.
- The ETF provides a simple way to invest in the beaten-down software industry, with a diverse portfolio of companies that are expected to grow revenue and earnings long-term.
Introduction to AI’s Impact on the Software Industry
Artificial intelligence (AI) holds a lot of promise for businesses, with many investors seeing generative AI unlocking significant productivity gains and saving lots of money on overhead. As a result, a growing narrative among investors is that businesses will be able to replace many of their enterprise software packages with a single powerful AI tool. This has led to a decline in share prices for many software stocks, as investors lose faith in their ability to grow revenue and earnings long-term. However, as the article notes, "concerns that a single generative AI application can displace specific pieces of enterprise and professional software are overblown."
The iShares Expanded Tech-Software Sector ETF
The iShares Expanded Tech-Software Sector ETF (IGV) tracks a group of North American software companies, with its biggest components being some of the biggest winners from the excitement around artificial intelligence, including Microsoft, Palantir Technologies, and Oracle. These three companies combine to account for about a quarter of the ETF’s value. The remaining three-quarters of the exchange-traded fund includes stocks such as Salesforce, Intuit, and Adobe, which have been negatively affected by fears that AI could displace the need for their software. As the article states, "fears that AI could displace the need for their software have negatively affected the earnings multiples investors are willing to pay for those stocks."
The Benefits of AI Integration
However, most software providers are working to integrate AI capabilities into their offerings, making them more competitive and compelling for new customers. This integration can also increase the overall revenue per seat. For example, Palantir’s AI Platform has "rapidly expanded its use cases and lowered the learning curve, enabling tremendous sales growth." Similarly, Microsoft has seen significant benefits from integrating AI into its enterprise software offerings. As the article notes, "AI investors have seen the impact of integrating generative AI into Microsoft’s and Palantir’s enterprise software offerings."
Investing in the Software Industry
For investors who want a simple way to invest in the beaten-down software industry, expecting the current narrative to fade and real financial results to win out, the iShares ETF provides an easy way to do so. The ETF offers a diverse portfolio of companies that are expected to grow revenue and earnings long-term, making it a great way to invest in artificial intelligence despite the growing concern that AI will negatively affect many of the businesses in the fund. As the article concludes, "the iShares ETF provides an easy way to invest in the beaten-down software industry, expecting the current narrative to fade and real financial results to win out."
Conclusion
In conclusion, the iShares Expanded Tech-Software Sector ETF (IGV) offers a great way to invest in the software industry, which is expected to benefit from the integration of AI capabilities. While concerns about AI’s negative impact on software companies have led to a decline in share prices, the ETF’s components are well-positioned to benefit from AI, with many software providers working to integrate AI capabilities into their offerings. As the article notes, "you wouldn’t hire a generalist to do a specialist’s job, especially when the price difference is relatively negligible for an enterprise." With its diverse portfolio of companies and expected long-term growth, the iShares ETF is a great option for investors looking to invest in the software industry.
https://www.fool.com/investing/2026/01/24/this-etf-could-be-a-great-contrarian-artificial-in/
