On the last two occasions that stock markets tanked, the bursting of the dotcom bubble in spring 2000, and the 2008-09 international financial crisis, software-based technology stocks were hit badly. Of course, it was the spectacular overvaluation of fledgling, often loss making, online business models the sparked the dotcom market crash – hence the name.

Many tech companies were wiped out entirely and the survivors, including the likes of Amazon, eBay and Adobe and IBM saw their valuations decimated. It took up to 10 years for even the survivors, several now among the world’s biggest companies, to reach their pre-crash valuations.

The stock market slump that wiped almost half of the value off equity markets globally also saw technology stocks, many again having achieved giddy valuations over the previous few years, suffer more than most. Revenue multiples of software-centric shares shrank by an average of around 75%.

The cycle of tech companies achieving valuations based on huge revenue multiples, despite some still not having ever turned a profit, has again been in full view over the past several years. The era of cheap money over the last decade, the legacy of the record-low interest rates and huge government stimulus programmes rolled out to aid the recovery from the last financial system-inspired crisis, was kind to tech start-ups.

Private equity and venture capital funds, flush with cheap cash, threw money at favoured tech start-ups. Nobody even looked particularly closely at, or seemed to mind, how ‘tech’ some of these tech start-ups were. Qualification as a tech start-up was revised down to the possession of an attractive website and app. WeWork anyone?

But this time around tech companies are weathering the storm that has gripped equity markets with more resilience than companies in other sectors. Or, at least those which are genuinely tech companies and whose products or service are software-based, rather than just enabled by software.

Despite the fact many software companies were at expensive-looking valuations before markets plunged, they lost an average of 30% in value when markets bottomed in mid-March. The rebound since has seen gains of around 20% from that bottom. Software companies fell by less than the wider market and have also recovered at a rate ahead of it.

What’s changed? Why have software companies valued at aggressive multiples not been the market’s whipping boy this time around? The answer appears to be the relatively obvious one – software is now fundamental to almost every part of the economy, from workplaces to the domestic setting.

20 years on from the dotcom crash, software is the beating heart of how most businesses in the modern economy are run and how their employees do their jobs. Unless companies actually go to the wall, they will keep using the software they used before the Covid-19 pandemic because they have little choice. They can’t go back to analogue systems.

For companies that have gone into ‘sleep’ mode until the Covid-19 pandemic lockdown is relaxed and they can begin operations again, software licenses often now count as fixed expenses they can’t cut and then reinstate. They have crucial processes and data tied up in them that would be lost. For companies still operating, especially those with employees who have switched from an office-office to home-office environment, most have increased their reliance on software to help facilitate remote work.

In a personal and domestic setting, software-based entertainment and conveniences are also discretionary expenses that would be cut only as a last resort. Stuck at home with the outside world restricted, subscription services for television and film streaming, music and gaming are a lifeline for many.

We may not have noticed it while it was happening, but in just 10 years the virtualisation of the world has made huge strides. There’s not a lot that software isn’t now tied up in. That doesn’t mean software companies are immune to economic storms. New sales growth rates will inevitably be hit in coming months and some current customers will be lost.

But as a sector, the impact will be felt less. Software’s central role in how we now work and live means it is, to an extent, insulated. Like prime real estate during a housing market crash, the contemporary software sector looks like it will take a hit, but a smaller one, and be among the first to recover.

However, things could still get worse before they get better. And there are sceptics. RBC Capital Markets’ Alex Zukin is one of them. He believes that the fortunes of so many institutional investors are so entwined with the valuation of the tech stocks they have heavily invested in that they have been propping prices up by holding on to them for dear life.

“I think we’re absolutely in the denial phase. We haven’t had a crisis for a long time — and these [cloud companies] weren’t around for the last one.”

The faith in software companies being shown by the big beasts of Wall Street finance is also heavily influenced by a core change in the sector’s business model over recent years. A decade ago, the norm was for software companies to sell licenses for a one-off upfront fee. That business model is much more vulnerable to major economic shocks than what it has evolved into – one based on recurring subscription revenue.

The software sector now largely operates on a SaaS (software as a service) model. Keeping customers paying to maintain access to software means a minority can often simply stop paying for several months. Cloud companies, such as Amazon’s AWS, Microsoft’s Azure, Google Cloud Platform and Alibaba Cloud, charge clients of their platforms based on the computing power they use.

Frank Slootman, head of private cloud database company Snowflake, says that even if some of his company’s customers are feeling the heat from the economic deep freeze the global lockdown has meant, his company’s performance is still running ahead of expectations. Private cloud services tend to be used for sensitive data and applications for whom security is a priority. Their clients can’t simply switch to cheaper options – often due to regulatory requirements but also because of the reputational risk if they were to fall victim to hackers as a result and the expense involved in re-architecting IT systems.

Other software companies, especially those whose products and services support remote work, are positively flying. Zoom, the videoconferencing app, has seen its share price gain over 30% since the current market crash started. Citrix and Equinix, also software companies in the virtual work environment space, are up 15% and 25% respectively.

There is a general expectation that even after the Covid-19 pandemic has passed, the world will not simply return to the way it was. Working virtually is expected to become more common practise, accelerating a trend that was already in place. Software companies with products that will benefit from that trend are generally doing well. DocuSign, which offers software for the secure, legally-binding signature of virtual documents is one example, as are identity management software company Okta and cyber security firm Fortinet.

More cautious voices are, however, still warning that SaaS companies shouldn’t think they are home and dry. Allianz Global Investors portfolio manager Walter Price warns:

“Just because they have a subscription model doesn’t mean they’re going to be able to close deals. Near-term, it’s hard to get meetings, and it’s hard to get consultants to work on digital transformation. I see a lot of these projects getting postponed.”

But most investors seem confident that such issues will prove relatively short lived and will be far outweighed by the wider benefits of the trend towards digitalisation. But new sales are being hit. German enterprise-software company SAP last week published first quarter figures that showed new licence revenues had dropped by 31%. But the company is confident that most deals are simply delayed and revenues will recover later in the year.

Mr Zukin’s not convinced and thinks many have forgotten, if they were even around, previous downturns.

“I think they have rose-coloured glasses on. You can’t believe what the companies tell you, because they don’t know, and they don’t want to see their multiples impacted.”

Optimists also admit they can’t know for sure how revenues will hold up and how quickly sales growth will return. There is a risk is that seemingly dependable flow of subscription income will start to lessen as some cash-strapped customers seek to renegotiate payment terms.

Software companies are today much more focused on the lifetime value of customers, rather than seeking to secure more money upfront as their historical selfs or predecessors did. As long as the current crisis doesn’t lead to widescale bankruptcies, even software companies agreeing to drop prices for a limited period of time may not make a huge difference to them.

Most agree the outcome of the current pandemic will be an acceleration of the shift to cloud computing and software. One of the major benefits of the cloud is that it offers flexibility and companies pay for what they use rather than having to invest in and maintain expensive on-site infrastructure like servers able to handle occasional peaks in usage.

Credit Suisse analyst Brad Zelnick comments:

“There’s no doubt in our minds that the cloud will become even more important.”

There is still a question over how much pain the coronavirus shutdown will inflict in the meantime. But what does look certain is that this time around, software stocks will not be those hardest hit by this market crash.