Software Shares Tumble After New AI Tool Fuels Investor Skepticism

The start of the new year was expected to offer a rebound opportunity for battered software stocks. Instead, the sector has stumbled out of the gate, posting its weakest opening stretch in years and leaving investors questioning when or if a recovery will arrive.

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Renewed anxiety swept through the group after AI startup Anthropic unveiled a new artificial intelligence tool on Jan. 12. The release reignited concerns about disruption that had already pressured software companies throughout 2025.

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Shares of Intuit, the maker of TurboTax, plunged 16% last week, marking their steepest decline since 2022. Adobe and Salesforce, a leader in customer relationship management software, each slid more than 11% over the same period.

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In total, a basket of software-as-a-service stocks tracked by Morgan Stanley has fallen roughly 15% so far this year, following an 11% drop in 2025. According to data compiled by Bloomberg, that marks the worst start to a year for the group since 2022.

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“The latest news from Anthropic highlights just how hard it is to model future growth,” said Bryan Wong, a portfolio manager at Osterweis Capital Management, which oversees $7.9 billion in assets. “The pace of technological change is faster than I can remember, and that level of speed brings a similar level of uncertainty.”

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Anthropic’s newly released Claude Cowork service, introduced as a research preview, is designed to automate complex workplace tasks. According to the company, it can generate spreadsheets from screenshots or assemble draft reports from scattered notes capabilities built rapidly using AI itself.

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While the product remains untested at scale, it embodies exactly the type of functionality that has investors on edge. The tool reinforces bearish views that are becoming increasingly entrenched, according to Jordan Klein, a technology-sector analyst at Mizuho Securities.

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“Many buy-side investors see no compelling reason to own software stocks, regardless of how cheap or beaten down they appear,” Klein wrote in a Jan. 14 note. “They see no near-term catalysts that would justify a valuation reset,” he added, referring to the potential for multiple expansion.

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The recent selloff has only widened the performance gap between software stocks and other corners of the technology market. Long-standing strengths such as high margins and predictable, recurring revenue once the defining appeal of the sector are being overshadowed by fears that nimble AI competitors could upend traditional business models.

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This divergence is becoming more pronounced as the Nasdaq 100 hovers near record highs, while established software names such as ServiceNow trade at levels not seen in years. A key issue is that many incumbents have yet to demonstrate meaningful traction from their own AI initiatives. Salesforce has highlighted early adoption of its Agentforce platform, but the product has yet to materially lift revenue.

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Adobe has rolled out generative AI features across its creative software suite, though it declined to update certain AI-related metrics in its most recent earnings report in December.

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While established software firms benefit from advantages like distribution scale and proprietary data, they still need to show faster growth to restore investor confidence, Wong said. For now, that acceleration appears elusive.

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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 an estimated 19% in 2025, according to Bloomberg Intelligence. By contrast, other areas of the tech sector offer stronger fundamental momentum.

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Semiconductors stand out in particular. Chipmakers such as Nvidia enjoy clearer visibility into future revenue, thanks to firm spending commitments from major customers including Microsoft, Amazon, Alphabet, and Meta, all of which plan to invest heavily in AI infrastructure. Bloomberg Intelligence forecasts that profits for semiconductor-related stocks will rise nearly 45% in 2025 and accelerate further to 59% in 2026.

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“Chipmakers are outperforming because their fundamentals are improving rapidly and their customer demand is more predictable,” said Jonathan Cofsky, portfolio manager at Janus Henderson Investors. “With software, there’s far more uncertainty about how AI reshapes the competitive landscape.”

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Despite these challenges, valuations across the software sector continue to compress. The Morgan Stanley software basket now trades at about 18 times projected earnings over the next 12 months—the lowest level on record and well below its decade-long average of more than 55 times.

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“Software stocks once commanded premium valuations because subscription revenue was recurring and highly predictable,” Wong said. “But it’s difficult to justify those multiples when AI agents can operate around the clock and complete tasks that once took teams weeks in a single day.”

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Still, those depressed valuations are prompting some Wall Street firms to grow more constructive on the sector’s longer-term outlook. Barclays expects software stocks to “finally catch a break” in 2026, citing steady customer spending and increasingly attractive pricing. Goldman Sachs believes broader AI adoption could ultimately benefit software companies by expanding their total addressable markets. D.A. Davidson argues that narratives have overshadowed fundamentals for many names, making selective opportunities more compelling heading into 2026.

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“We can’t say the bottom is in, since existential concerns around AI aren’t going away anytime soon,” said Chris Maxey, managing director and chief market strategist at Wealthspire, which manages $580 billion. “But the sector is starting to look more interesting. It’s not an obvious buy yet—but we’re getting closer.”

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