As of February 19, Microsoft shares are down 28% from last fall’s all-time high. Shares of Oracle are down 55% from their all-time highs, also at the end of 2025. Shares of Salesforce have lost 27% of their value this year.
Analysts are coming up with competing, somewhat contradictory theories about the software sell-off. According to one statement, stock traders fear that artificial intelligence will put software companies out of business by making their products obsolete. Another story suggests that software companies have spent too much on AI and will not get sufficient returns from their investments.
In other words, software stocks are falling because AI is a game changer, or because it isn’t. Both theories cannot be correct.
Microsoft shares have taken a hit as part of a broader sell-off in software stocks in 2026.
Whatever the trigger, the software sell-off is embroiled in a larger debate about the so-called AI bubble: a dramatic rise in technology stock prices fueled by over-exuberance over the promise of artificial intelligence.
The S&P Software & Services index, which tracks software stocks, is down nearly 20% through 2026. The broader tech-focused Nasdaq index is down a more modest 2.4% year to date.
“We’re seeing a lot of really good companies that are really being squeezed indiscriminately,” Jason Moser, senior investment analyst at The Motley Fool, told USA TODAY.
The reversal of fortune is all the more striking, Moser and others say, because software stocks were the darlings of Wall Street in the years before the rise of AI.
Between the beginning of 2016 and the end of 2021, the S&P software index quadrupled, from under 4,000 to over 16,000. In an era of high-speed internet and cloud computing, software stocks seemed like a good choice.
“At some 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 essentially masters of the universe.”
The AI revolution has sown uncertainty about the future of American software companies.
The AI revolution likely started in November 2022 with the introduction of ChatGPT, the AI-powered chatbot that could answer user questions with conversational text.
Initially, Wall Street celebrated AI as a tool that would make everyone more productive, including software companies.
“AI is coming out, initially it seems like it will be a rising tide that will lift all boats in technology,” Samana said. But over time, the AI experiment began to look “more like a winner-takes-all.”
Software stocks took a hit in late 2025 as part of a broader shift away from technology stocks, driven by concerns about an AI bubble.
Anthropic’s Claude Code AI product allows people with no coding experience to write software.
The software sell-off accelerated in January amid a wave of excitement about Anthropic’s Claude Code, an AI product that reportedly lets users with no coding experience write their own software, a trend known as “vibe coding.”
If the average American worker can write his own software, stock traders reasoned, what will become of software companies?
“You can tailor the application to you, using artificial intelligence, rather than buying an off-the-shelf system,” said James Cox, managing partner of Harris Financial Group.
“Investors are increasingly concerned about the industries that AI will disrupt,” Cox said. “And it’s pretty clear that that involves software.”
Wall Street remains optimistic about AI’s enormous promise to transform the American workplace and home.
Still, stock traders in recent weeks have seemed less enthralled by the promise of AI and more concerned about the jobs and products it could consume.
In the case of software companies, investors are now wondering whether “the software they create will ultimately put them out of business,” says Caleb Silver, editor-in-chief of Investopedia.
For ordinary investors, the sell-off raises an important question: Is this a good time to invest in software companies? To buy the dip?
Analysts caution against predicting when and why the selloff might end.
“I think this is something that will probably drag on for a while,” Moser said.
But he and other stock experts say falling stock prices don’t necessarily mean a major software company is facing an existential crisis over AI.
Microsoft, for example, remains one of the most praised stocks on Wall Street. Few analysts likely expect AI to wipe out the company. And now the shares are selling at a 28% discount.
“It’s a gift,” Cox said. “You have the opportunity to buy these companies at significantly lower earnings multiples than they were six months ago.”
However, don’t assume that software stocks will perform as they have in the past. The era in which software companies ‘eat the world’ may be over.
“These stocks have delivered tremendous returns,” Silver said. “Coming to terms with the fact that they may not get the same returns in the next decade.”
This article originally appeared on USA TODAY: AI revolution rocks tech stocks: Time to buy?
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