The SaaS market has seen a strong recovery in 2026 after a steep decline driven by fears of AI disrupting B2B software. The iShares Expanded Tech-Software ETF (IGV) closed at $106.81 on September 3, up nearly 40% from its April low near $74. The index gained 16% in August, signaling renewed investor confidence in the sector, according to saastr.com.
The market correction began eight months ago when roughly $2 trillion of market cap was wiped out amid concerns that AI would displace traditional software providers. However, the rebound has been uneven, with companies like CrowdStrike, Twilio, and Snowflake gaining more than 70% year-to-date, while others such as monday.com and HubSpot remain down over 33%. Jefferies noted over Labor Day weekend that momentum is expected to continue into September and that fears around AI displacement are exaggerated.
Growth rates explain some of the divergence in stock performance but not all. For example, Twilio and monday.com both reported 22% growth in their June quarters but ended up 109 points apart in stock performance. Key factors influencing valuations include the extent to which AI workloads impact a company’s business and the multiples carried into the year. Large incumbents like Salesforce experienced significant drawdowns but have largely recovered, with Salesforce finishing up 4.3% on the year.
State Street’s XSW software ETF reached an all-time high in late August, underscoring the sector’s rebound. The next major market data point will be the September earnings season, which will provide clearer insight into how SaaS companies are integrating AI into their offerings and sustaining growth.