- Growing AI fears recently sparked a sharp sell-off across software stocks
- SaaS valuations fell as disruption narratives gained momentum
- AWS revenue growth outpaced broader tech market performance, CEO looks to allay fears
Technology stocks have struggled in 2026 as investors reassess the commercial impact of rapidly advancing AI tools.
The backlash has been particularly sharp among software-as-a-service companies, with some analysts now describing the downturn as a “SaaS apocalypse.”
The iShares Expanded Tech-Software Sector ETF is down about 24% this year, marking one of its weakest performances since 2022.
Investors react to AI shockwaves
This selloff followed a wave of new AI features released by major model developers, including OpenAI and Anthropic.
Investors appear to be concerned that AI systems could compress margins, reduce demand for traditional subscription products, or shift spending to infrastructure providers instead of application vendors.
The market reaction suggests that expectations of disruption are being priced in aggressively, even if the company’s financial results remain relatively stable.
Amazon Web Services CEO Matt Garman has now publicly argued that the market’s reaction may be disproportionate.
“Look, my own opinion is that a lot of the fear is overblown,” Garman told CNBC, that maintaining customers will require increasing amounts of computing power and infrastructure regardless of how they integrate AI into their operations.
In Garman’s view, companies can build their own systems, rely on SaaS providers or combine both approaches, yet the underlying demand for cloud capacity is expected to grow.
Amazon recently reported that AWS revenue rose about 24% year over year to $35.6 billion in the fourth quarter, beating analyst estimates. Its operating margins hit 35%, slightly higher than in the previous quarter.
These numbers suggest that cloud infrastructure spending has not fallen in line with the broader stock decline.
Some major software companies have introduced AI-powered features without experiencing dramatic acceleration in revenue growth.
ServiceNow reported fourth quarter revenue growth of 20.7% compared to nearly 26% 2 years earlier.
The deceleration does not necessarily indicate a deterioration, but it has raised concerns that AI improvements may not immediately translate into faster expansion.
AI is “a huge disruption … a disruptive force that’s going to change how software is consumed and how it’s built,” Garman added.
SaaS and big players may have structural advantages, but Garman believes they “need to innovate, just like the rest of the world. They can’t stand still. If they stand still, they will absolutely be disrupted.”
Markets often react sharply to technological change, but the gap between expectation and measurable impact remains uncertain at this stage.
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