Phoenix Investment House Launches Fund Betting on AI-Hit US Software Stocks

Phoenix Investment House, through its KSM ETF brand, has launched a new fund tracking 30 US software stocks amid significant sector pressure due to fears that artificial intelligence (AI) will disrupt many companies' business models. Over the past year, many profitable software companies have lost between 30% and 60% of their value, driven by concerns that AI developments will slow growth and reduce demand for their products.

The new ETF, KSM TipRanks US (4A) KTF Software Index, follows a methodology by research firm TipRanks that uses a Smart Score model. This model assigns each stock a comprehensive score from 1 to 10 based on Wall Street analyst recommendations, hedge fund activity, and insider trading, rather than relying solely on market capitalization. The index has declined 28% over the last 12 months and nearly 19% since the start of the year, underperforming the popular IGV software ETF, which fell 22.3% over 12 months.

Key holdings include Intuit (7% weight), which dropped 63% in the past year and is valued at about $81 billion; Microsoft (6.6%), down 25.5%; Palantir (6.1%), down 22%; and Synopsys (6%), down 37%. The largest holding is cybersecurity firm Palo Alto Networks (9%), which gained 58% amid growing AI-driven demand for security solutions.

Phoenix and TipRanks argue that while semiconductor and hardware stocks have benefited from AI infrastructure investments, software stocks have been sold off due to fears that AI tools will enable organizations to develop their own software, threatening the SaaS model. However, they see the current downturn as an investment opportunity, citing leading software companies’ competitive advantages such as unique customer databases, deep enterprise integration, regulatory compliance, and security infrastructure.

They also expect the AI market to shift from infrastructure building to application deployment, where software firms will integrate AI tools into existing products and adopt usage-based pricing models. Although Phoenix’s fund just launched, other Israeli ETFs like Harel’s S&P North American Expanded Tech Software and Mor’s US Technology Services 50 also offer focused exposure to US software stocks. Globally, the iShares Expanded Tech-Software Sector ETF has lost 17.5% this year.