A falling knife or an opportunity? The investment house that offers a bet on the sector most affected by AI

One of the well-known rules in the capital market is not to try to 'catch a falling knife' — that is, not to rush to buy a stock that is in a nosedive, even if it looks cheap, for fear that the declines have not yet ended. On the other hand, stocks that have collapsed may actually become an opportunity if the market has reacted with excessive force. This is exactly the bet that the Phoenix investment house is making.

Through the KSM ETF brand, the investment house launched a new fund this week that tracks American software stocks — precisely at a time when the entire sector is under heavy pressure due to fears that artificial intelligence (AI) will harm the business model of many companies. In the last year, many software stocks have lost between 30% and 60% of their value, even though these are profitable companies with established operations. This is against the backdrop of fears that AI developments will slow their growth rate and even harm the demand for their products.

The new ETF, KSM TipRanks US (4A) KTF Software Index (currency hedged), tracks an index that includes 30 American software stocks, which are selected based on the methodology of the research company TipRanks. Unlike traditional indices based only on the size of the company (i.e., its market cap), this index relies on the Smart Score model. Instead of relying on a single indicator, the Smart Score gives each stock a comprehensive score (in the range of 1 to 10), which weighs analyst recommendations from Wall Street, the activity of hedge fund managers, and the actions of stakeholders and company executives with the security.

The index in question has lost 28% in the last 12 months and almost 19% since the beginning of the year. For comparison, the popular software stock ETF IGV yielded a negative return of 16.8% since the beginning of the year, and in the last 12 months, it has fallen by 22.3%. Among the prominent holdings in the index is Intuit, which has a weight of about 7% and has lost 63% of its value in the last year. Intuit, which operates in the fintech sector, is currently trading at a value of about $81 billion. Another significant holding is Microsoft (6.6%), whose stock has fallen by 25.5% during this period. The index also includes Palantir (6.1%), which has lost 22% in the last 12 months. The company develops data analysis systems for government bodies, intelligence agencies, and commercial clients. Another stock is Synopsys (6%), which has fallen by 37%.

The largest holding in the index is actually a cyber company - Palo Alto Networks - which has a weight of about 9%. The cyber company's stock has actually risen by 58% in the last year. Unlike many software companies, its activity in the field of information security benefits to a large extent from the increasing use of AI and is not perceived as being threatened by it.

At KSM and TipRanks, they explain that while chip and hardware companies benefited from the wave of investments in AI infrastructure, software stocks actually absorbed sales. According to them, the fear that generative AI tools will allow organizations to develop software themselves and undermine the SaaS (Software as a Service) model has led to a repricing of many of the stocks. However, at KSM, they believe that the declines have created an investment opportunity. They claim that leading software companies have competitive advantages that are difficult to replicate, including unique customer databases, deep integration with organizational systems, compliance with regulations, and information security infrastructure. They also estimate that the AI market is now moving from the infrastructure construction phase to the application phase, where software companies are expected to integrate AI tools into existing products and move to pricing models based on usage and value creation.

Although the KSM fund was launched only this week, it is not the first in Israel to offer focused exposure to American software stocks. The Harel S&P North American Expanded Tech Software ETF (currency hedged), which manages about 190 million shekels, has fallen 16.3% since the beginning of the year. Also, Mor launched in May 2026 the fund Mor Tracking US Technology Services 50, which focuses mainly on software companies. Globally, the iShares Expanded Tech-Software Sector ETF stands out, having lost 17.5% since the beginning of the year.