Software Stocks Slide as AI Disruption Fears Return to Wall Street

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Despite the Nasdaq 100 hovering near record highs, a significant segment of the technology market is struggling. Software stocks, once celebrated for their predictable subscription revenues and strong margins, are facing renewed pressure as investors grow increasingly anxious about rapid advances in artificial intelligence. The latest trigger is the launch of a new AI tool by startup Anthropic, which has reignited fears that traditional software business models may be under threat.

The selloff has been swift and severe. TurboTax owner Intuit Inc. plunged 16% in a single week, marking its worst decline since 2022. Adobe Inc. and Salesforce Inc. each fell more than 11%, while ServiceNow Inc. continues to trade near multi-year lows. Collectively, a basket of software-as-a-service (SaaS) stocks tracked by Morgan Stanley is down about 15% so far this year, following an 11% decline in 2025. This represents the group’s worst start to a year since 2022.

The renewed anxiety stems from Anthropic’s release of “Claude Cowork,” a research-preview AI service unveiled on January 12. The tool can perform complex tasks such as creating spreadsheets from screenshots and drafting detailed reports from scattered notes—functions that overlap directly with the core offerings of many enterprise software companies. Although the product remains unproven at scale, it exemplifies the kind of AI-driven automation that investors fear could erode demand for traditional software.

“The pace of change is extraordinary,” said Bryan Wong, portfolio manager at Osterweis Capital Management. “It’s becoming increasingly difficult to assess what future growth will look like for software companies when AI tools are evolving so rapidly.”

Those concerns are weighing heavily on valuations. According to Morgan Stanley, its software stock basket is now trading at just 18 times projected earnings over the next 12 months—the cheapest valuation on record and far below the sector’s decade-long average of more than 55 times earnings. Yet low valuations alone have not been enough to attract buyers.

As Mizuho Securities analyst Jordan Klein noted in a recent client memo, many institutional investors currently see “no reasons to own” software stocks, regardless of how beaten down prices become. The belief is that there are no clear catalysts for a re-rating in the near term, particularly as AI disruption clouds long-term revenue visibility.

The contrast with other areas of the technology sector is striking. While software stocks languish, chipmakers are enjoying a powerful rally. Companies like Nvidia Corp. benefit from strong revenue visibility, driven by massive AI infrastructure spending commitments from Microsoft, Amazon, Alphabet, and Meta. Semiconductor-related stocks are projected to deliver profit growth of nearly 45% in 2025, accelerating to 59% in 2026, according to Bloomberg Intelligence.

“Chipmakers are outperforming because their fundamentals are clearly improving and their customer demand is more predictable,” said Jonathan Cofsky, portfolio manager at Janus Henderson Investors. “In software, there’s far less certainty about how AI will reshape the ecosystem.”

Another challenge for incumbent software firms is their slow progress in monetizing AI. Salesforce has highlighted adoption of its Agentforce product, but so far the impact on revenue has been modest. Adobe has integrated generative AI features into its creative tools, yet it did not provide updated AI-specific performance metrics in its most recent earnings report. Investors, it seems, want clearer evidence that AI investments will translate into accelerated growth.

Looking ahead, earnings growth for software and services companies in the S&P 500 is expected to slow to about 14% in 2026, down from roughly 19% in 2025. This deceleration further weakens the sector’s appeal at a time when other technology segments offer faster and more visible growth.

Still, not everyone on Wall Street is bearish. Some analysts argue that pessimism has gone too far. Barclays expects software stocks to “finally catch a break” in 2026, citing stable customer spending and historically attractive valuations. Goldman Sachs believes broader AI adoption could ultimately expand the total addressable market for software companies rather than shrink it. D.A. Davidson has also suggested that narratives have overshadowed fundamentals, creating selective buying opportunities.

“The sector isn’t a screaming buy yet,” said Chris Maxey, chief market strategist at Wealthspire. “Existential fears around AI aren’t going away anytime soon. But valuations are compelling, and we’re getting closer to a point where software stocks become genuinely interesting again.”

For now, however, uncertainty dominates. Software companies once commanded premium valuations because their subscription models offered steady, recurring revenue that investors could project far into the future. In an era of AI agents capable of operating nonstop and completing complex projects in hours rather than weeks, those assumptions are being challenged.