Software stocks just faced overdue reality checks they’ve been avoiding since 2024. The iShares Expanded Tech-Software Sector ETF crashed 7% year-to-date and 10.5% over six months, making it the market’s unwanted stepchild while semiconductor stocks surge ahead. Your enterprise software investments are bleeding red, with investors suddenly convinced that AI platforms like Anthropic’s Claude Cowork will turn traditional software into expensive digital relics.
The Carnage Spreads Across Big Names
ServiceNow, Salesforce lead the retreat with double-digit declines
ServiceNow shares plummeted 12% year-to-date, dragging its forward P/E down to 38.25x from a five-year average of 67.56x. Salesforce got hammered worse, dropping 14.3% this year and sitting 36.9% below its 52-week high.
The damage spread rapidly:
- Snowflake down 4.1%
- Datadog off 12.5%
- Intuit bleeding 17.7%
Even the typically resilient SaaS index declined 6.5% in 2025 while the S&P 500 gained 17.6%.
AI Anxiety Drives the Exodus
Fear of platform disruption triggers capital flight to hardware plays
The AI disruption narrative has investors spooked about traditional software’s survival prospects. Rising Treasury yields hitting 4.18% aren’t helping valuations that expanded during pandemic-era low rates.
Fear dominates logic as capital rotates toward AI infrastructure plays and chipmakers, leaving enterprise software companies to explain why their sticky recurring revenue models won’t get steamrolled by generative AI agents.
Contrarians See Blood in the Streets
Veteran analysts call panic overblown, spot buying opportunities
D.A. Davidson’s Gil Luria thinks the doom-and-gloom crowd lost their minds. “The death of software has been greatly exaggerated,” he argues, pointing to three years of AI coexistence without mass software extinction.
Mizuho analysts are calling the selloffs “silly,” noting that AI won’t easily replace complex enterprise workflows that took decades to build. These contrarians see rational valuations finally emerging from the wreckage.
Value Hunters Circle the Bargains
Compressed multiples create entry points for patient investors
SAP’s 15% recurring revenue growth looks attractive at current prices, with Jefferies maintaining a Buy rating and €290 target on shares. BNP Paribas Exane maintains Outperform ratings despite cutting ServiceNow’s target to $120 from $186.
The question isn’t whether software will survive AI disruption—it’s whether you’re ready to buy when everyone else is running for the exits.
