Hopes for a rebound in battered software stocks have quickly faded, as renewed anxiety over artificial intelligence disruption pushes the sector to one of its weakest starts in years, Bloomberg News reported Sunday.
A recent release from AI startup Anthropic reignited concerns that new tools could erode the value of traditional software products. Shares of Intuit (INTU) dropped sharply last week, while Adobe (ADBE) and Salesforce (CRM) also suffered double-digit declines.
A Morgan Stanley index tracking software-as-a-service companies is down about 15% so far this year, extending last year’s losses and marking its worst opening since 2022. Investors are increasingly wary that rapid advances in AI are making it harder to predict long-term growth, undermining the sector’s traditional appeal of recurring revenue and high margins.
The latest downturn has widened the performance gap between software firms and other tech segments. While the Nasdaq 100 (NDX) is near record levels, many software stocks are trading at multi-year lows, in part because incumbents have yet to demonstrate meaningful revenue acceleration from their own AI initiatives.
Growth expectations reinforce the divergence. Earnings expansion for software and services companies is projected to slow next year, while chipmakers are expected to see sharply accelerating profit growth, supported by heavy AI infrastructure spending from large technology companies. This clearer demand outlook has helped semiconductors outperform.
Despite the gloom, valuations for software stocks have fallen to record lows, with the Morgan Stanley basket trading at roughly 18 times forward earnings, far below historical averages. Some strategists argue that pessimism has overtaken fundamentals and that stabilizing customer spending, combined with broader AI adoption, could eventually revive the group.
For now, however, uncertainty around how AI will reshape the software business model continues to weigh on investor confidence, leaving the sector cheap but still struggling to find a catalyst.