As software shares slide, analysts weigh whether the pullback in Microsoft and peers is risk, or opportunity.
Software stocks are sliding.
As of Feb. 19, Microsoft stock is down 28% from its all-time high of last fall. Oracle stock is down 55% from its record high, also in late 2025. Salesforce stock has lost 27% of its value this year.
Analysts offer competing, somewhat contradictory theories about the software selloff. By one account, stock traders fear artificial intelligence will put software companies out of business by rendering their products obsolete. Another narrative suggests software firms have overspent on AI and won’t reap sufficient returns on their investments.
In other words, software stocks are sinking either because AI is a game-changer or because it isn’t. Both theories can’t be right.
Software stocks are sinking. Has the AI bubble burst?
Whatever set it off, the software selloff has been swept up in a larger debate about the so-called AI bubble: A dramatic runup in technology stock prices fueled by overexuberance about the promise of artificial intelligence.
The S&P Software & Services index, which tracks software stocks, is down nearly 20% in 2026. The broader, tech-heavy Nasdaq index is down a more modest 2.4% year to date.
“We’re seeing a lot of really good businesses out there that are getting hammered, really indiscriminately,” Jason Moser, senior investment analyst at The Motley Fool, told USA TODAY.
The reversal of fortunes is all the more striking, Moser and others say, because software stocks were Wall Street darlings in the years before AI’s ascent.
Between early 2016 and late 2021, the S&P software index quadrupled, rising from under 4,000 to over 16,000. In an era of lightning-fast internet and cloud computing, software stocks seemed like sure bets.
“At one point, software was going to eat the world,” said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute. “These companies were basically masters of the universe.”
Will software stocks survive the AI revolution?
The AI revolution arguably began in November 2022 with the introduction of ChatGPT, the AI-fueled chatbot that could answer user questions with conversational text.
At first, Wall Street celebrated AI as a tool that would make everyone more productive, including software companies.
“AI comes out, originally it looks like it will be a rising tide that will lift all boats in tech,” Samana said. But over time, the AI experiment came to look “more like winner-take-all.”
Software stocks took a beating in late 2025 as part of a broader shift away from tech stocks, driven by concerns about an AI bubble.
With ‘vibe coding,’ just about anyone can write software
The software selloff accelerated in January amid a wave of enthusiasm over Anthropic’s Claude Code, an AI product that reportedly allows users without coding experience to write their own software, a trend known as “vibe coding.”
If average American workers can write their own software, stock traders reasoned, then what will become of software companies?
“You can create the application custom for you, using artificial intelligence, as opposed to buying an out-of-the-box system,” said James Cox, managing partner for Harris Financial Group.
Increasingly, “investors are concerned about the industries that AI will disrupt,” Cox said. “And it’s pretty clear that software is among them.”
Wall Street remains bullish on the vast promise of AI to transform the American workplace and the American home.
Yet, in recent weeks, stock traders have seemed less enthralled by AI’s promise and more concerned about the jobs and products it might consume.
In the case of software companies, investors now wonder if “the software they’re creating will actually end up putting them out of business,” said Caleb Silver, editor in chief of Investopedia.
For everyday investors, the selloff raises an important question: Is now a good time to invest in software companies? To buy the dip?
When will the software stock selloff end?
Analysts caution against predicting when or why the selloff might end.
“I think this is something that probably drags on for a little while,” Moser said.
But he and other stock experts say sinking stock prices do not necessarily mean any big software company faces an existential crisis over AI.
Microsoft, for example, remains one of Wall Street’s most highly touted stocks. Few analysts, presumably, expect AI to wipe the company out. And now, its stock is selling at a 28% discount.
“It’s a gift,” Cox said. “You’re getting the ability to buy these companies at significantly less earnings multiples than you had six months ago.”
Don’t assume, however, that software stocks will perform as they have in the past. The era when software companies were going to “eat the world” may well have passed.
“These stocks have created tremendous returns,” Silver said. “Come to terms with the fact that they may not create the same returns over the next 10 years.”
