It’s been a wild few months for software and other “middleman” stocks. First, there was “SaaSpocalypse,” in which investors dumped enterprise software purveyors that help companies manage accounts and internal workflows. Then, traders unloaded a variety of other intermediary businesses including insurance brokers, wealth managers and travel booking platforms. As one argument went, who needs expensive software subscription platforms when AI coding tools could spin up made-to-order new software in hours1? Who needs insurance brokers or wealth managers when AI chatbots can guide consumers on their financial journeys2?

Sure, some of those fears will be validated, making bottom-fishing in individual stocks a bit of a minefield. But from the standpoint of diversified S&P 500 Index investors, these episodes of volatility may be a blessing in disguise — a sign that market psychology is shifting and the air is coming out of the AI bubble.

© Bloomberg