In early 2026, the tech sector experienced a significant downturn, marking a shift in the long-held belief that software was the ultimate business model due to its scalability and recurring revenue. The iShares Expanded Tech-Software Sector ETF (IGV) fell more than 20%, indicating a structural change rather than a mere cyclical dip. The rise of AI has transformed from a supportive tool into a potential threat to established software companies, particularly in the SaaS space. Many investors are moving away from digital assets towards physical infrastructure investments, prioritizing energy and tangible assets over software. The concept of “vibe coding” has emerged, where AI tools enable rapid software development with minimal human input. This has made it easier for companies to create bespoke applications, but it has also led to a flood of low-quality micro-SaaS tools that often fail under more complex demands. This phenomenon, combined with a lack of trust in new software due to “SaaS fatigue,” has resulted in a challenging environment for software providers. The traditional business model based on selling licenses is collapsing as AI automates workflows, reducing the need for human seats and driving revenue contraction for those reliant on headcount. The shift toward physical assets is underscored by the performance gap between energy stocks and tech stocks, with energy investments outperforming software-heavy ETFs by over 50 percentage points. Despite the turmoil, some software companies remain resilient, particularly those with strong network effects and proprietary data. Companies like Palantir have thrived by leveraging unique datasets that enhance their AI capabilities, demonstrating the value of proprietary information in a commoditized software landscape. Switching costs provide some defense for established players, but as AI continues to simplify coding and reduce technical lock-in, even giants like Salesforce are adapting their pricing models to stay competitive.