Why Software ETF Critics Are Missing the Bigger Picture: A Contrarian Take

The iShares Expanded Tech-Software Sector ETF (NYSEMKT: IGV) has experienced a sharp decline, falling 18% from its highs amid a wave of investor skepticism about artificial intelligence’s impact on traditional software providers. Yet beneath the surface, a contrarian opportunity may be emerging for investors willing to question the prevailing narrative about AI displacing enterprise software entirely.

The root of this pessimism is straightforward: many investors believe that generative AI tools will consolidate fragmented software ecosystems into single, powerful platforms, rendering specialized business software obsolete. This fear has triggered a repricing of software stocks, with earnings multiples compressing significantly. However, this contrarian view suggests that market participants are discounting both the resilience of existing software vendors and the complexity of enterprise transitions.

The Contrarian Case: Market Sentiment Versus Actual Performance

What separates the contrarian investor from the crowd is recognizing when market emotion diverges sharply from fundamentals. The software companies within IGV continue to deliver solid revenue growth despite the pessimistic headlines. The ETF’s top holdings—including Microsoft, Palantir Technologies, and Oracle—represent roughly a quarter of the fund’s value, but the remaining components are equally instructive.

Names like Salesforce, Intuit, and Adobe populate the top 10, and while these have faced valuation pressure, their actual business results tell a different story than market sentiment suggests. This gap between perception and reality is precisely where contrarian investors find opportunity.

Inside IGV: Which Companies Are Really Threatened?

The iShares Expanded Tech-Software Sector ETF tracks North American software companies across a broad spectrum. Its most visible champions—Microsoft, Palantir, and Oracle—have arguably benefited most from the AI momentum, as these firms have successfully integrated generative AI capabilities into their existing platforms.

The remaining holdings face more nuanced dynamics. While investors worry that a generalist AI tool could replace specialized software, this concern often overlooks practical business realities. Enterprise managers rarely bet their careers on unproven technology transitions when existing solutions work reliably. The switching costs, integration risks, and learning curves associated with replacing an entire software stack typically outweigh potential savings from a single generic AI platform.

Why Enterprise Software Won’t Be Replaced by Generic AI Tools

A contrarian perspective reveals why this replacement narrative is overblown. Enterprise software serves highly specialized functions that generic AI cannot easily match. The difference between a generalist solution and a specialist provider often means the difference between adequate and excellent outcomes. For most organizations, the cost savings of switching are negligible compared to the operational risk.

More importantly, software vendors themselves are not sitting idle. The integration of generative AI capabilities into existing offerings has become a competitive advantage, enhancing rather than cannibalizing their value propositions. Microsoft’s and Palantir’s success with AI-enhanced platforms demonstrates this dynamic clearly. Palantir’s AI Platform has dramatically expanded use cases while lowering barriers to adoption, driving accelerated sales growth. Meanwhile, other software providers have leveraged new AI features to expand revenue per user while making their solutions more compelling to prospective clients.

Real Numbers Tell a Different Story

This is where contrarian investing intersects with contrarian data. The financial results of software companies continue to improve, even as the stock market prices them for decline. The Motley Fool’s Stock Advisor service has historically identified such moments: investors who purchased Netflix shares on December 17, 2004, at the time of recommendation, would have realized $464,439 on a $1,000 investment. Similarly, Nvidia investors from April 15, 2005, saw their initial $1,000 grow to $1,150,455. Stock Advisor’s long-term average return of 949%—dramatically outpacing the S&P 500’s 195% return—reflects the value of contrarian positioning when market fears are disconnected from underlying performance.

The Opportunity for Contrarian Investors

For investors seeking exposure to artificial intelligence without overpaying for pure-play AI stocks, the IGV ETF presents an unconventional path. The current valuation reflects a contrarian opportunity: a collection of profitable, revenue-growing software companies trading at discounted multiples specifically because of unfounded concerns about AI disruption.

The market’s narrative about wholesale software replacement has created a temporary mispricing that contrarian investors can exploit. While near-term sentiment may remain negative, the gap between what these companies are actually earning and what the market is willing to pay suggests a meaningful opportunity for patient capital willing to bet against prevailing pessimism.

Data as of January 24, 2026