Earlier this year, the market collectively decided that software was facing an existential crisis.
Artificial intelligence was making software cheaper and faster to build. Businesses would soon create their own systems rather than paying established providers. New AI-native competitors would multiply, and the attractive economics enjoyed by software companies would deteriorate.
The resulting sell-off became known as the “SaaSpocalypse”. By February 2026, Australian technology shares had fallen more than 30% from their late-2025 peak, and software stocks globally suffered a similar fate. As is often the case, the market took a reasonable concern and applied it indiscriminately.
When the sell-off happened, Forager already owned several companies in the sector in both Funds. But we soon had a lot more invested in software, using the lower prices to increase those investments, add new ones and re-invest in stocks that had been previously sold on valuation concerns. We wrote at the time that we believed the market had overreacted to the threat posed by AI, and positioned the portfolios accordingly.
A meaningful part of the Funds’ recent gains has come from those decisions, including the re-investments in Catapult (ASX:CAT) and Bravura (ASX:BVS) in the Australian Fund and several Japanese, US and UK software companies in the International Fund.
Some software businesses will undoubtedly be disrupted by AI. Products that are easy to replicate, expensive and have few barriers to switching are particularly vulnerable. But the idea that every software company would suffer equally was too simplistic. Over the past few months, the market has started to recognise the difference.
Software fights back
After a bit of a false start in May, the global recovery gathered momentum in July and August. The iShares Expanded Tech-Software Sector ETF, which tracks a broad collection of US software businesses, is up 45% from the low in April, as company results continue to ease concerns about widespread AI disruption. Salesforce (NYSE:CRM) gained roughly 40% during August alone, while the broader software sector significantly outperformed the US market.
The explanation is fairly straightforward. While the debate has focused on what AI might do in the future, many established software companies have continued to grow revenue, retain and add new customers, and generate cash.
AI is also proving useful to incumbents. It can improve products, plus reduce the cost of software development and support. For businesses with valuable data and deeply embedded systems, AI may be more an opportunity than a threat.
That distinction has been important for both the Forager Australian Shares Fund and the Forager International Shares Fund.
Australian software delivers evidence
In Australia, Catapult and Bravura were among the companies hit hard during the initial sell-off. The Fund had sold both investments as valuations became stretched in 2025, before buying them back at substantially lower prices earlier this year.
Catapult provides wearable technology, video analysis and performance software to professional sporting organisations. Its systems contain years of athlete data and sit at the centre of how coaches make decisions. The cost to elite sporting organisations is relatively low (everything is relatively low when you are paying Erling Haaland $40m per year), yet the potential value of improving performance can be enormous. That combination of low cost, valuable data and integration into daily workflows makes the product difficult to replace.
Catapult’s May results provided some tangible evidence. Its shares jumped around 30% on the day its results were released, after the company reported stronger growth and positive cash generation. The share price rose to over $3.75, having traded to a low of $2.88 the previous day.
Bravura has staged an even larger rebound. Its software supports the core administration systems of wealth managers and superannuation funds. Replacing those systems can take years, plus create substantial operational risk at a high cost.
In July, Bravura upgraded its expected cash profit for the 2026 financial year from a range of $69m to $73m to approximately $77m. Its shares rose 12% on the day. The full-year result in August brought another strong reaction, supported by improved revenue, a return to profit, dividends and a proposed $50m share buyback. Over the 30 days to mid-August, the share price rose approximately 38%.
By the end of July, Bravura and Catapult were the largest and third-largest investments respectively in the Australian Shares Fund. Software exposure across the portfolio had grown from 3% at the start of 2026 to 16% by June.
This portfolio positioning was reflected in Fund performance for the month. After a tough previous 12 months, the Australian Fund returned 5.3% in July, and has returned a further 1.8% in August.
Global recovery
The same pattern has been playing out internationally.
The Forager International Shares Fund entered 2026 with several investments in Japanese software companies. These are highly profitable businesses benefiting from Japan’s gradual shift away from outdated, locally installed systems and towards cloud-based software.
Despite continuing to produce good operating results, the shares were hit hard by the software sell-off. That created an opportunity to increase the Fund’s investment.
July provided the first meaningful reversal. Japanese holdings contributed around 3% to the International Fund’s 5.0% return for the month. OBIC Business Consultants (TSE:4733) was the standout, rising 32% during July after reporting 18% profit growth and announcing the first price increase for its cloud-based small-business accounting software. Pricing power is an important piece of evidence. A product facing imminent replacement would usually struggle to charge customers more.
UK accounting software provider Sage Group (LON:SGE) was one the International Fund bought in the depths of despair. It was also the Fund’s largest investment at the end of July, with its shares rising from £8.92 on 1 May 2026 to £10.92 by 28 August 2026. A July update delivered Sage’s fifth consecutive quarter of accelerating organic revenue growth, with the shares rising 9% on the day. Sage’s accounting, payroll and financial systems are important to customers, but relatively inexpensive. Few small businesses are likely to risk their accounts, payroll and tax compliance to save a modest monthly subscription.
The International Fund’s July report put it simply: there is still scant evidence for the bleakest version of the AI disruption thesis.
Not every stock has recovered
The SaaSpocalypse may be unwinding, but it has not disappeared.
Japanese recruitment software company Visional (TSE:4194), another top-five International Fund investment at the end of July, traded at ¥9,303 on 1 September 2026. That was almost 50% above its 52-week low, but still approximately 23% below its high. Its share price has recovered some lost ground without returning to its previous valuation.
UK online automotive marketplace Auto Trader (LON:AUTO), which the International Fund bought during the sell-off, is well up on our purchase price but remains well below its former highs. The business continues to generate exceptional margins and substantial cash, but investors remain worried about whether AI will change how people search for cars online.
In Australia, enterprise software provider Readytech (ASX:RDY) rose almost 9% following its August result, yet remained around 37% lower for the calendar year. Slower growth and rising costs have created genuine questions for investors, even though its systems remain deeply embedded across education, workforce and local government customers.
Catapult’s share price has eased back to $3.10 - $3.20 level since that initial post-result bounce.
These are not businesses where risk can simply be dismissed. Some software companies will lose customers, suffer pricing pressure or find that AI makes their products less valuable. Others may continue performing well but remain poor investments if their share prices already assume years of exceptional growth. AI will keep improving and new models will be released that will spook investors again. That is why this remains a stock-picking exercise and long-term investors will have to tolerate plenty of volatility even if they are right.
The first stage of the recovery rewarded almost anything labelled software. From here, the differences between businesses should matter more. Customer retention, pricing power, cash generation, switching costs and management’s ability to use AI productively will determine which companies keep trending up.
The SaaSpocalypse has started to ease. The easiest gains may already have been made, particularly in the US and Japan. But with several good software businesses still well below their previous highs, and with operating results increasingly diverging from gloomy share prices, the opportunity is far from over.