Software stocks are underperforming the Nasdaq 100 by a record or near-record margin. This trend stems primarily from investor fears that rapid advancements in artificial intelligence (AI)—particularly agentic AI tools and automation capabilities from companies like Anthropic—could disrupt traditional software-as-a-service (SaaS) models, reduce demand for certain enterprise applications, and compress valuations across the sector.
Software stocks often tracked via ETFs like IGV — iShares Expanded Tech-Software Sector ETF have fallen sharply, with the sector down significantly year-to-date around 15-20% or more in some indices, while the broader Nasdaq 100 has held up better (flat to modestly down in early 2026, driven by strength in areas like semiconductors and hyperscalers).
Outlets and analysts describe this as the largest underperformance margin on record or “this century” in some references, with gaps widening notably since peaks in late 2025. Major names hit hard include Salesforce (down 27-33%), Oracle (27%), Workday (39-40%), Snowflake (26-35%), Intuit (~45%), and others like Figma (post-IPO decline of ~41%).
Even Microsoft has seen pressure in relative terms. Broader indices like the Nasdaq 100 benefit from heavier weighting in AI-enabling sectors; chips via Nvidiaand AMD, cloud infrastructure from Amazon, Microsoft and Google, which have offset software weakness.
Register for Tekedia Mini-MBA edition 19 (Feb 9 – May 2, 2026).
Register for Tekedia AI in Business Masterclass.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Register for Tekedia AI Lab.
The sell-off has been dubbed a “SaaSpocalypse” or software bear market in some commentary, with the IGV ETF down over 30% from its 2025 peak in certain analyses, while tech and semiconductor proxies remain flat or up. However, not all views are bearish long-term: Some analysts from J.P. Morgan, HSBC argue the reaction is overdone (“broken logic” or valuations at “historic lows”), creating potential buying opportunities in resilient names with strong moats; mission-critical enterprise software less vulnerable to quick AI replacement.
Others highlight dip-buying rebounds in recent sessions, with software stocks bouncing on certain days amid broader market recovery. Wall Street sees upside in select beaten-down names, with targets implying 40-100%+ potential in cases like certain SaaS leaders.
This divergence highlights a rotation within tech: away from pure software toward AI hardware and infrastructure beneficiaries. Market sentiment remains volatile as investors await more earnings data and AI developments to gauge the true extent of disruption.
Software has lagged the Nasdaq 100 by the largest margin on record or “this century” per multiple sources, with IGV down roughly 25-30% year-to-date or from its 2025 peak, while the Nasdaq 100 has been flat to down only modestly around -3% YTD in some periods.
This has driven a sharp rotation within tech: away from pure-play software and SaaS toward AI-enabling infrastructure; semiconductors via Nvidia and AMD, hyperscalers like Microsoft, Amazon and Google cloud. The spread between software (IGV) and semis (SMH) has hit peaks of ~34-36% in early 2026, highlighting a “winners-take-most” dynamic where AI hardware beneficiaries hold up or gain while application-layer software suffers.
The sell-off contributed to sharp drops in major indices on certain days; S&P 500 -1%, Nasdaq -1.1%, Dow -1.7% in mid-February sessions, with software and services sectors among the biggest decliners.
Multi-trillion-dollar wipeouts in tech valuations including ~$1 trillion erased from software in short bursts amplified swings, spiking the VIX and driving inflows to safer assets like money markets. Software sector P/E multiples have compressed rapidly from ~34x to ~24x in recent months, reflecting fears of slower growth, margin pressure, and potential cannibalization by AI agents and tools.
Even Microsoft has faced relative pressure despite AI exposure. These reflect concerns that agentic AI from Anthropic’s Claude updates, OpenAI tools could automate workflows, reduce demand for subscriptions, and erode pricing power and high margins in areas like CRM, HR, accounting, legal tech, and creative software.
Hedge funds have profited billions shorting software, with “sell-first, ask-questions-later” mentality dominating. Options markets bet on further downside, and retail and institutional portfolios have seen amplified losses in tech-heavy holdings.
Some analysts argue resilient names with strong moats; mission-critical enterprise tools from Microsoft, ServiceNow, CrowdStrike, Palo Alto could benefit from AI integration rather than replacement. Wall Street sees 40-100%+ upside in select beaten-down stocks like Intuit or Salesforce.
Dip-buying has appeared in bounces; IGV up ~2% on recovery days, with signs of potential bottoms via high volume and oversold signals. While fears of AI disruption are seen as partially valid, many view the reaction as excessive—enterprises face high switching costs for deeply integrated SaaS, and incumbents are adapting via AI features.
This creates potential buying opportunities in high-quality names at “historic lows.” Markets increasingly treat AI as displacing rather than augmenting incumbents, raising white-collar job concerns and potential consumer spending slowdowns in extreme “doomsday” scenarios.
Correlations have spiked with assets like Bitcoin (behaving like a “software stock”), private credit (exposure to software loans), and even precious metals in broader risk-off moves. Upcoming reports from Salesforce, Snowflake are unlikely to calm nerves immediately, as growth isn’t accelerating broadly in software while it is in AI-exposed areas.
This divergence underscores 2026’s tech theme: AI infrastructure thrives while traditional software faces existential questions. Volatility persists as investors await more AI evidence and earnings to determine if this is a temporary overreaction or structural shift. Some see it as creating generational opportunities in undervalued, AI-resilient software leaders.