The Takeaway
An AI-fueled software rout, known as the “SaaSpocalypse”, has roiled markets in 2026, leading Morningstar’s equity research team to review its economic moat ratings for 132 companies.
Downgrades and upgrades to economic moat ratings, as well as adjustments to fair value estimates for several companies, have affected the selection universe for the Morningstar Wide Moat Focus Index.
Early in 2026, the Morningstar Wide Moat Focus Index’s moderate overweight position in the software industry has weighed on relative performance.
Market conditions through the first two months of 2026 represent a major shift from what we’ve observed over much of the last decade, a period when “big tech” has dominated and references like “FAANG and “The Magnificent 7” have entered the zeitgeist. Bullishness has morphed into fear about how Generative Artificial Intelligence will challenge business models. An AI-fueled software rout, known as the “SaaSpocalypse”, has roiled markets.
In response, Morningstar’s equity research team reviewed economic moat ratings for 132 companies across its global coverage. While the team views the share price pullback for many software companies as overdone, they also see GenAI as a credible long-term threat. Several companies saw their moat ratings downgraded, while a smaller number of moats were upgraded. Estimates of companies’ fair values were also adjusted.
The changes impact the selection set for the Morningstar Wide Moat Focus Index, which tracks companies rated wide moat by Morningstar equity analysts trading at the lowest price relative to estimated fair value. Early in 2026, the index’s moderate overweight position in the software industry has weighed on relative performance. Amid the SaaSpocalypse, this report provides detailed year-to-date performance attribution and a summary of recent changes to economic moat ratings and fair value estimates.
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