Minor recovery from cybersecurity names
IGV shut at 88.0, down 20 % YTD, in spite of rebounding 4 % QoQ. The ETF additionally
underperformed the more comprehensive market (S&P 500: + 8 %) and stays 25 % below its Sep 2025
top. The May rally (+ 21 %) was driven by strength in cybersecurity and AI-focused software application
names, along with positive outlook in advance of Oracle’s 4 Q 26 earnings, but verified short-lived in June
complying with higher capex advice. Capitalists rotated into AI infrastructure recipients incl.
semiconductors (SOXX: + 96 % YTD) and AI IPO SpaceX (4 x oversubscribed at ~ 95 x P/S).
Microsoft’s YTD efficiency was broadly level at – 26 7 % (Mar: – 26 1 %). Cybersecurity names
PANW, now the ETF’s biggest holding, and CRWD led gains, while information and analytics stocks
MDB and SNOW additionally outshined. Meanwhile, software application derating continued. Palantir fell
40 % YTD in spite of strong incomes, while ADBE (- 44 %) and CRM (- 43 %) were amongst the
weakest entertainers.
Basics stay resistant despite AI concerns
The marketplace remains to rate in weaker long-lasting growth from agentic AI disruption, however
near-term fundamentals continue to be resilient. SaaS LTM revenue growth accelerated to 17 % YoY
in 1 Q 26, up 4 4 ppt from a year earlier and the best rate in 14 quarters, while software application
growth excl. cloud suppliers MSFT and ORCL held consistent at 16 % and are expected to stay
unmodified in 2 Q 26 e. At the same time, large-cap SaaS firms remain to surpass,
delivering 17 % YoY growth versus 14 % a year earlier, suggesting restricted influence from AI
disturbance at the greater end of the industry, while keeping superior earnings.
Lean right into AI champions
We expect large-cap SaaS firms to remain focused on driving AI adoption instead of
near-term monetisation. While costs AI features and consumption-based rates
give clear monetisation paths, broader usage growth continues to be the priority. We view
this favorably, as increasing AI fostering can sustain development of core solutions with time.
Although consumption-based models might introduce some income volatility, they provide a
larger long-term profits possibility as consumers range use.
We like SaaS infrastructure, cybersecurity and data analytics as they are straight
beneficiaries of AI investing. Infrastructure offers the foundation for AI implementation;
cybersecurity stays mission-critical as AI increases the strike surface area; and data analytics is
crucial for turning enterprise data right into AI outcomes.
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