Software mageddon may sound like a disaster movie from the 1970s, but for investors it was all too real.
The term describes the recent sell-off in software and technology stocks, driven by fears that generative AI companies could make traditional software companies irrelevant.
As of February 9, the North American Tech-Software iShares ETF (IGV) was down 24.6% year to date. Some investors have left the sector, while others are looking for bargains.
Wedbush analyst Dan Ives dismissed the gloom, stating that it is “crystal clear to us that the AI revolution is accelerating at a breakneck pace, with 2026 being a watershed year for AI.”
“The market is predicting a near-term doomsday scenario for software companies, which we believe is extremely exaggerated,” he said in a Feb. 8 research note. “The sell-off at tech giants Salesforce and ServiceNow is far exaggerated, and both companies will be core participants in the AI revolution.”
Software mageddon was a major topic on the February 5 edition of TheStreet Pro’s Stocks & Markets Podcast, when host and contributor Chris Versace spoke with Lindsey Bell, chief investment officer at 248 Ventures and chairman of BetterInvesting.
“It’s been an ugly week, hasn’t it?” Bell said, noting that many technology companies reported strong quarterly results. “Everyone knows there is a demand for AI right now. The question is how long will it last and what will be the return and profitability of all this expenditure.”
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Bell called it a conundrum for some of the bigger names in the industry given their current spending.
“We’ve priced in all the good days,” she said. “Now we’re holding out or even taking some money off the table until we have more clarity on profitability.”
“ServiceNow, Google, Microsoft, Palantir – a lot of the worn-out names,” Versace said, “but their businesses are solid. The quarterly numbers were very good.”
He added that Jensen Huang, co-founder and CEO of AI chipmaker Nvidia (NVDA), Lisa Su, CEO of semiconductor company AMD (AMD), and Rene Haas, CEO of Arm Holdings (ARM), all discussed the sell-off.
“And they all said, ‘This is ridiculous,’” Versace said. “AI is a tool. It will be embedded in software to make better products. It will not eat the world.”
“Some of these companies are currently integrating AI into their systems,” Bell says. “They have strong sales and profitability. The shares aren’t falling off a cliff, but they’re getting beat up like their days are over.”
The Magnificent Seven, which includes Nvidia, Apple (AAPL) and Microsoft (MSFT), have been on a downward trend due to market uncertainty, tariffs and heavy AI-related capital expenditures, which analysts say could have a significant impact on cash flow.
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“Even though the software is collapsing and the Mag Seven can’t hold up, other parts of the technology are performing well,” Bell says. “As the AI business expands, different types of companies will be needed to facilitate the expansion.”
“I think sometimes knee-jerk reactions take over,” Versace said. “We need to take a step back and assess the data more carefully, and not assume the worst.”
He acknowledged that not every tech company will be a winner.
“Some software models will be eaten by AI,” he said. “But other enterprise platform companies are well positioned for the long term. Services with direct competitors from OpenAI or Anthropic may face more challenges.”
“Some software stocks have valuable tools or services that could make them targets for mergers and acquisitions,” Bell said. “Think about the big picture. Connect the data points and realize: More than a handful of these stocks are likely to be higher within 12 months, but some are vulnerable.”
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This story was originally published by TheStreet on February 9, 2026, where it first appeared in the Economics section. Add TheStreet as a preferred source by clicking here.
