- US software and data services stocks fell for a seventh straight session amid deepening worries about AI’s impact on traditional software models.
- The rout highlights growing tension between investor optimism about AI’s potential and concerns about its disruption of established enterprise software revenue streams
What happened
Shares of US software and data services companies continued their sharp decline on Thursday, marking a seventh consecutive session of losses as fears spread that artificial intelligence could disrupt traditional software business models. The sell-off has been severe enough that the sector has shed an estimated US $1 trillion in market value in just one week. The S&P 500 software and services index dropped about 4.6 per cent, reaching levels not seen relative to its 200-day moving average since mid-2022.
Major software names bore the brunt of the downturn. ServiceNow, Salesforce and Microsoft all reported notable share price declines during the rout, underscoring the widespread investor retreat from technology stocks perceived to be vulnerable to AI disruption.
Analysts noted that the catalyst for much of the market’s nervousness was the rapid emergence of advanced AI tools — including legal and productivity agents — which some investors fear could replace core functions traditionally offered by enterprise software firms. For example, new AI-powered tools from companies like Anthropic have heightened investor concern that AI could automate functions that have traditionally underpinned subscription software revenues.
Despite some companies posting solid earnings or raising dividends, sentiment remained weak. Even firms with fourth-quarter results in line with expectations were punished by the market, reflecting deep unease about future growth in a world where AI capabilities are advancing quickly.
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Why it’s important
This episode also reveals how quickly sentiment can shift in markets where narratives about disruption drive stock prices almost as much as fundamentals. The rout has led some investors to rotate capital toward more defensive sectors such as consumer staples and energy, while selectively rewarding companies perceived to have durable competitive moats or clear roles in the broader AI economy.
However, there are questions about whether current fears are fully justified. Some industry leaders, including executives at AI infrastructure firms, have characterised the idea that AI will directly replace software as an oversimplification. Others argue that AI will ultimately complement rather than cannibalise legacy software platforms, at least in the near term, suggesting the market reaction may reflect panic as much as structural change.
The debate is likely to continue as 2026 progresses, with investors and companies alike watching earnings, AI deployment progress, and revenue trends for clearer signals on how AI will reshape the software industry.
