It's called the "SaaSpocalypse"... Software stocks crashed so hard that some investors thought it was the end of the world.

Mixed Signals in Software Stocks By Joe Austin, senior analyst, Chaikin Analytics It's called the "SaaSpocalypse"... Software stocks crashed so hard that some investors thought it was the end of the world. SaaS refers to "Software as a Service," the subscription model software companies use. It means you rent software instead of buying something that comes in a box. From September 2025 through April 2026, the State Street SPDR S&P Software and Services Fund (XSW) fell 34%. Over that same time, the S&P 500 Index stayed roughly flat. It was a rough wake-up call for tech investors who thought software stocks could only go up. Since then, XSW has recovered. But the fall we saw over the past 12 months is just part of a longer-term trend. A common way to value software companies is the price-to-sales (P/S) ratio. At the end of 2024, the median P/S ratio across public software companies was 6.2 times. By the end of 2025, that had declined to 4.9 times. At the end of March this year, it declined to 3.3 times. The reason, of course, was AI. The last leg down occurred as Anthropic released Claude Cowork, an AI tool that can run multistep software tasks on its own. But the negative sentiment may have gone too far. The software industry still showed some great results. According to Pitchbook, earnings before interest, taxes, depreciation, and amortization ("EBITDA") margins will increase from 20.0% last year to 22.6% this year. That's up from 17.4% in 2024. In the first five months of this year, global software deal value rose 41% versus the first five months of last year. That puts software mergers and acquisitions on track for their second-best year ever. But on Wall Street, the truth rarely gets in the way of a good gloom-and-doom story, especially one built on AI. Software still drives a lot of innovation in our economy. And the Power Gauge recently turned positive on XSW. So let's see what's going on in these stocks. 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Late last year, the Power Gauge turned negative. And along the way, the system put out seven sell signals. But XSW's trend reversed in the summer – it has gotten four buy signals since mid-July. Money flow and relative performance turned positive, too. A turnaround like that can mean a big shift in market sentiment. The simplest way to play this trend is to buy the ETF. This isn't a terrible strategy – XSW has more than quadrupled the return of the S&P 500 in the past three months. That's great for a short-term trade. But an index ETF buys everything, winners and losers alike, and not every stock in this ETF deserves your attention. Take a closer look, and you'll find that there are plenty of great software companies to buy. You just have to be picky...   How to Find the Software Winners The industry standard for judging software companies is the "Rule of 40." It gives us a baseline to compare individual names. You calculate it by adding a company's revenue growth to a measure of profit, like free cash flow margin or EBITDA margin. If a company balances growth and profitability well, the two should add up to at least 40. I used our new screener to help me run a similar analysis. I screened for software companies in the Russell 3000 that the Power Gauge rates "bullish" or "very bullish." I also limited the screen to companies with at least $1 billion in market cap. As of last week, that was 72 companies. Then I calculated the Rule of 40 for each one. Half – 36 companies – cleared the bar. For the others, revenue growth plus free cash flow margin added up to less than 40. I then looked at valuation. The first thing I noticed is that you're paying up for a strong Rule of 40 score. The best names tend to carry the richest price tags. In software, a P/S ratio above 10 is usually a sign of success. It also means the market has high hopes... And when expectations are that high, the stock can get bumpy. Of the 12 companies that trade above 10 times sales, 10 of them cleared the Rule of 40. Two didn't. I also checked debt levels, a newer worry in software. Traditionally, software businesses didn't run on debt. Now companies borrow more, usually to buy other companies. In any business, debt changes the bet. You're trusting management to borrow money and spend it well. And if interest rates rise, that debt gets heavier. Out of the 72, nine had debt-to-equity ratios above 2 times, and another nine were lower but still above 1 times. Fourteen of the 72 companies grew their debt 20%-plus over three years. But seven of these still cleared the Rule of 40. So it's an even score as to whether the debt is helping or hurting. Last, I went through the Power Gauge's take on every stock. I looked for strong Money Flow, strong relative strength, and buy signals. Based on that analysis, there were 12 names with really great charts. There were 10 more with favorable characteristics, but fewer buy signals. That's just my take based on reading the Power Gauge at a particular point in time. If you're hunting for buy ideas, that's plenty to chew on. But this is out of 72 companies – not the 100-plus in XSW that includes many companies the Power Gauge doesn't like. The Power Gauge, though, does have a favorable view of the software industry group these days. You just have to know where to look. And that's what the Power Gauge does best. Good investing, Joe Austin Marc Chaikin is speaking at our corporate affiliate Stansberry Research's upcoming 24th annual conference in Las Vegas. And he would love for all his readers to see his presentation... Click here for a discounted Livestream Virtual Pass so you can watch Marc LIVE from your phone or laptop – in the comfort of your own home. Market View Major Indexes and Notable Sectors     # Hld:     Bullish     Neutral       Bearish Dow 30 -1.13% 8 14 8 S&P 500 -0.55% 105 244 148 NASDAQ -0.08% 22 56 21 Small Caps -0.45% 515 981 394 Bonds -0.01%   Oil, Gas and Consumable Fuels +1.68% 33 16 2 — According to the Chaikin Power Bar, Small Cap stocks remain somewhat more Bullish than Large Cap stocks. Major indexes are mixed. *  *  *  * Sector Tracker Sector movement over the last 5 days Information Technology +2.30% Utilities +2.09% Industrials +0.98% Communication +0.58% Financial +0.17% Energy +0.00% Materials -0.25% Real Estate -0.32% Discretionary -0.52% Staples -1.44% Health Care -2.64% *  *  *  * Industry Focus Oil & Gas Equipment Services 8 19 6 Over the past 6 months, the Oil & Gas Equipment Services subsector (XES) has underperformed the S&P 500 by 1.61%. However, its Power Bar ratio which measures future potential is Strong, with more Bullish than Bearish stocks. It is currently ranked #13 of 21 subsectors. Top Stocks FET Forum Energy Technologies, Inc. FTI TechnipFMC plc INVX Innovex International, Inc. *  *  *  * Top Movers Gainers LITE +11.04% INTC +9.05% HPE +7.75% GLW +7.56% COHR +7.10% Losers HWM -10.70% AMGN -10.08% SYK -8.81% GDDY -8.32% EXPE -7.88% *  *  *  * Earnings report Earnings Surprises BRZE Braze, Inc. Q2 $0.19 Beat by $0.03 UNFI United Natural Foods, Inc. Q4 $0.69 Beat by $0.07 ABM ABM Industries Incorporated Q3 $1.04 Beat by $0.03 *  *  *  * You have received this e-mail as part of your subscription to PowerFeed. If you no longer want to receive e-mails from PowerFeed, click here. You're receiving this e-mail at reditudo@gmail.com. For questions about your account or to speak with customer service, call +1 (877) 697-6783 (U.S.), 9 a.m. - 5 p.m. Eastern time or e-mail info@chaikinanalytics.com. Please note: The law prohibits us from giving personalized financial advice. © 2026 Chaikin Analytics, LLC. All rights reserved. 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