Wall Street’s so-called “Software-mageddon” has continued to gather momentum, leaving investors divided over whether the steep selloff has created genuine buying opportunities or if further downside still lies ahead.
The sharp downturn across the software sector reflects growing concern about how rapidly advancing artificial intelligence could disrupt traditional business models. Investors are increasingly splitting the industry into perceived winners and losers, while also rotating out of technology stocks into sectors that have lagged during the recent bull market. The volatility has been amplified by earnings season, as quarterly results raise fresh questions about valuations and long-term growth prospects.
“The selloff, which arguably began last quarter, represents an awakening to the disruptive power of AI,” said James St. Aubin, chief investment officer at Ocean Park Asset Management. “It may be an overreaction, but the threat is real and valuations must reflect that.”
Some early signs of stabilization emerged on Thursday, with beaten-down European professional services stocks such as LSEG and RELX posting modest gains. Even so, both names remain down at least 9% for the week.
The S&P 500 software and services index has dropped roughly 13% in the past week alone, erasing more than $800 billion in market value. Major contributors to the decline include Intuit, ServiceNow and Oracle. Relative to the broader S&P 500, the sector has posted its worst three-month performance since May 2002, during the aftermath of the dot-com crash, according to Evercore ISI.
Despite the severity of the losses, some technical indicators now suggest the group may be nearing a short-term bottom. A handful of portfolio managers have begun selectively adding exposure, though most remain cautious.
“There is long-term value in some of these names, and they are becoming more attractive,” said Jake Seltz, portfolio manager at Allspring Global Investments. However, he added that more convincing catalysts—such as strong AI-driven revenue growth or clearer signs of enterprise adoption—are needed before committing more capital.
Investors Rotate Away From Technology
Renewed volatility was triggered by concerns surrounding a new AI tool from Anthropic’s Claude model, alongside disappointing earnings from major software players, including Microsoft.
Since peaking in late October, the S&P 500 software index has fallen around 25%, while the broader market has remained largely flat. Options markets also suggest limited appetite for aggressive dip-buying.
“This has truly been Software-mageddon,” said Art Hogan, chief market strategist at B Riley Wealth.
The downturn coincides with a broader rotation away from high-valuation technology stocks toward value-oriented and defensive sectors such as consumer staples, energy and industrials.
“The reason to sell expensive software stocks isn’t panic,” said Jim Masturzo, chief investment officer at Research Affiliates. “It’s that other areas offer better value and more upside.”
Searching for Value After the Selloff
Whether software stocks now represent value remains hotly debated. Among the biggest decliners this year are Intuit, ServiceNow and Salesforce, while Microsoft has become the weakest performer among the Magnificent Seven stocks. Thomson Reuters has also suffered sharp losses.
Some investors argue the sector now appears technically oversold. Walter Todd, chief investment officer at Greenwood Capital, said his firm has made small additions to ServiceNow and Microsoft, viewing the pullback as potentially forming a near-term bottom.
“I don’t believe AI will completely replace existing enterprise software overnight,” Todd said. “At these levels, some value is starting to emerge.”
Others remain more cautious. Brad Conger, CIO at Hirtle, Callaghan & Co., said he is evaluating stocks such as SAP, Adobe and Intuit but is not yet convinced that the full impact of AI disruption has been priced in.
For some, the selloff echoes last year’s turbulence triggered by the emergence of low-cost AI models, which raised doubts about the sustainability of software revenue growth.
“We’re seeing a repricing as the market gains clarity on what AI can and cannot do,” said Rene Reyna, head of thematic strategy at Invesco. “Is the selloff overdone? It’s too early to say—but selling often feeds on itself.”
