Software stocks experienced a sharp sell-off in early February 2026, driven by fears that rapid advances in artificial intelligence could disrupt traditional software businesses. The tech-heavy Nasdaq index fell more than 2% for the week, even with a rebound on Friday. Major software companies like Salesforce (CRM) and ServiceNow (NOW) saw their shares drop over 9%, while others in the sector faced similar or steeper declines.
The main trigger was the growing adoption and new features of Anthropic’s Claude AI tools, especially Claude Code and related plugins in Claude Cowork. These allow AI to handle tasks like coding, data analysis, legal work, finance, and marketing—potentially replacing or reducing the need for specialized subscription-based software. Investors worried that companies might need fewer software licenses if AI agents boost productivity or let businesses build custom solutions cheaply. This sparked concerns about the long-standing software model: high upfront development costs followed by low marginal costs and high profit margins as sales scale.
Big Tech earnings calls highlighted another pressure point: massive investments in AI infrastructure. Companies like Amazon, Alphabet (Google), Meta, and Microsoft plan to spend over $650 billion on capital expenditures in 2026, mostly for data centers and AI hardware. This shift from “capital-light” software businesses to more capital-intensive operations raised questions about future profitability and returns on these huge outlays. Some analysts doubt whether enough new revenue can be generated to justify the spending, potentially leading to slimmer margins across the industry.
Wall Street strategists, however, suggested the reaction might be excessive. Invesco’s chief global market strategist, Brian Levitt, told Yahoo Finance that the sell-off appeared “overdone,” noting that some stocks had been hit too hard given the uncertainty. He advised patience and diversification away from heavy AI exposure, pointing to stronger performance in sectors like consumer staples and energy.
JonesTrading’s chief market strategist, Mike O’Rourke, agreed that larger, adaptable software companies should weather the changes well, though new risks exist. He referenced productivity discussions in Alphabet’s earnings as adding to market alarm about AI agents but emphasized that disruption won’t hit every firm equally.
Roundhill Investors CEO Dave Mazza observed that investors are becoming more selective, rethinking valuations for growing companies now facing higher costs. He highlighted undervalued areas outside tech as alternatives.
Experts also weighed in on the bigger picture. Tech columnist Ali Barr explained that AI could challenge software’s scalability by making employees more efficient (reducing subscription needs), enabling in-house AI-built tools, or raising operating costs for AI-enhanced services. While AI’s potential is huge, questions remain about whether consumers and businesses can afford enough new AI products to deliver returns on Big Tech’s trillion-dollar-plus infrastructure bets over time.
Overall, the sell-off reflects real concerns about AI’s disruptive power—sparked by tools like Claude—but many on Wall Street view the panic as overblown for established players that can adapt. The software industry faces a pivotal, exciting yet uncertain moment as AI reshapes how businesses operate and invest. Investors are urged to stay discerning amid the volatility.
