MW AI companies are rationing compute. That's a boon for traditional software, one analyst says.

By Hannah Pedone

A closely followed iShares software ETF just had its best week in 25 years, as some believe the sentiment around AI may be changing - at least for now

Mizuho managing director Daniel O'Regan says that surging demand for AI may be boosting sentiment around legacy software.

As demand for artificial intelligence skyrockets, AI companies have been grasping for solutions to flatten the steep cost curve of compute.

That might mean a surprising win for traditional software, despite the industry being cast as falling prey to AI this year.

The software industry has suffering through a months-long stock slump, as investors have feared that AI agents threaten to displace the need for traditional software vendors.

The iShares Expanded Tech-Software Sector ETF IGV had plunged 36.6% from its Sept. 22 record-high close of $117.79 through April 10's close of $74.67 - its lowest close since November 2023.

Yet Mizuho managing director Daniel O'Regan believes that surging demand for AI may now be actually boosting sentiment around the legacy software sector.

The iShares software ETF surged 13.9% this past week, its biggest weekly gain since a record 15.5% rally during the week ended Oct. 5, 2001.

O'Regan told MarketWatch that as AI "usage accelerates and agents proliferate," overwhelming demand for tokens is putting pressure on AI companies to throttle back usage and may potentially even cause outages. He added that might be a positive for existing software-as-a-service companies.

"They're already on somebody's desktop, they don't get throttled down [and] they don't get turned off," O'Regan said.

AI providers are hiking prices and throttling usage amid real-capacity constraints, while "tokenmaxxing" is starting to chew up IT budgets, according to O'Regan. Tokenmaxxing refers to the practice of engineers maximizing the consumption of AI tokens - AI usage units - to measure productivity.

Anthropic has already been throttling back its usage limits for Claude. Thariq Shihipar, a member of Anthropic's technical staff, posted on X last month that the AI company had adjusted the session limits for Claude subscribers during "peak hours" for Claude usage, saying that users who run "token-intensive" jobs would be able to stretch session limits during off-peak hours.

"I know this was frustrating. We're continuing to invest in scaling efficiently. I'll keep you posted on progress," Shihipar wrote.

Anthropic told MarketWatch that Shihipar's post is their statement on the usage-limit adjustments.

Read more: A bullish indicator for software stocks just flashed. Why a true comeback could be in the cards.

OpenAI has also taken heat for its ability to manage the compute crisis. In March, the company announced it would be shutting down its Sora video platform - a decision which raised questions over OpenAI's strategy for how to allocate limited compute to its offerings.

Sarah Friar, the company's CFO, has expressed that OpenAI is making "tough trades" due to the compute crisis.

"Continued outages, throttle-backs and slowdowns in OpenAI or Anthropic is negative for them, but it could be slightly positive for the AI victims," O'Regan said, adding that the dynamic might be contributing to a rebound in software stocks recently.

Needham analyst Scott Berg, however, has taken a different view on what the AI-compute crisis means for software. He believes that capacity constraints will likely ease over time, and that the impact on software sentiment will be unchanged by short-term challenges. He's also noted that open-source large language models with capabilities catching up to leading models may "offset" usage throttling.

Berg said that we are "closing in on peak AI costs" and "peak constraints" for the production of chips and power supply associated with the AI buildout. He added that when viewed from the longer-term history of computing and technology, "costs always fall due to economies of scale."

"[E]very cycle has a pinch point, and then production capacity and techniques change, which ultimately drives costs lower," Berg said. "It happened with the PC by the late 1990s, cellphone usage costs in the early 2000s, and flat-screen TVs in the early 2010s."

See also: These two sectors have been boosted by AI hopes. Why investors should buy one, and trim exposure to the other.

-Hannah Pedone

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April 18, 2026 07:00 ET (11:00 GMT)

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