IGPT: Is the AI Software Boom Already Priced In?

The fund opened today at $60.57, trading near the top of its 52-week range. That price action frames a stark expectation gap. Over the past year, IGPT has delivered a solid 30.92% return. Yet, in recent months, the very software stocks it holds have underperformed the broader market by nearly 24 percentage points. The market consensus has clearly shifted, pricing in a rotation away from tech and a deep skepticism about software business models.

This isn't just a minor slowdown; it's a full-blown selloff. The options market is pricing in extreme volatility, with the 30-day implied volatility for a similar software ETF at 41%, near a 10-month high. This level of fear suggests traders expect continued turbulence and are paying up for protection. The setup is classic "sell the news" after a long rally. The AI boom was priced in for years, and now the reality of disruption is resetting expectations. The fund's high price reflects past performance, but the market's recent behavior shows it is now pricing in a much more uncertain future.

Expectations vs. Reality: The Performance Gap

The disconnect between the fund's long-term promise and its recent struggles tells the story of an expectation reset. Over three years, IGPT's return of -2.11% is not just weak; it's a stark underperformance against its category average of 0.10%. This isn't a minor blip. It's a full-scale retreat from the "buy the rumor" phase of the AI software boom. The market has moved on, pricing in a more skeptical view of the sector's growth trajectory and profitability.

This skepticism is amplified by the fund's extreme concentration. With 62.0% of its assets in the top 10 holdings, IGPT is a high-beta bet on a handful of names. This structure magnifies both gains and losses, making the fund exceptionally vulnerable to any stumble in its core positions. It's a pure-play theme, but one that now faces a reality check after a period of inflated expectations. The ultimate vote of confidence-or lack thereof-comes from investors themselves. Persistent outflows of $21.51 million over the past year signal cooling enthusiasm for this concentrated AI software theme. When money is leaving a fund at this rate, it's a clear indicator that the initial hype has faded and the forward view is less certain. The expectation gap has widened; the market is no longer buying the future promise priced into these stocks.

Valuation and Catalysts: What Could Break the Stalemate

The stalemate hinges on two forward-looking signals. First, the options market's fear gauge. A sustained break above the current 41% implied volatility level would signal reduced dread, but it's the price action above $61.81 that could trigger a classic "sell the news" reaction. That level is the fund's 52-week high; a move back above it would likely be met with profit-taking, as the rally from the lows is already priced in.

The second, more fundamental, catalyst is a clear demonstration that AI tools are creating new, durable revenue streams for software companies, not just cannibalizing them. The recent selloff was sparked by a legal tool from Anthropic's Claude that raised existential questions about traditional software business models. Until companies show they can monetize AI effectively-beyond cost savings or incremental upgrades-the market's skepticism will persist. This is the core expectation gap: the market is pricing in disruption, not a new growth engine.

In practice, watch for stabilization in the fund's top holdings. With 62.26% of assets in the top 10 holdings, any further outflows would confirm a sector rotation away from pure-play software. The persistent $21.51 million in outflows over the past year is a warning sign. If that trend accelerates, it would validate the "sell the news" dynamic, proving that the initial hype for AI software has faded and the forward view is less certain.