After a brutal selloff due to concerns about AI disruption, US software equities stabilize

Software Stocks Steady After $800 Billion Rout as AI Fears Shake Sector

Software and data services stocks showed signs of stabilising on Thursday after a steep selloff wiped out more than $800 billion in market value from the sector over the past week, as investors reassessed whether rapidly advancing artificial intelligence tools could weaken demand for traditional software and subscription models.

In premarket trading:

• ServiceNow rose 0.7%

• Salesforce gained 0.1%

• Microsoft slipped 0.8%

The bounce follows several sessions of heavy losses that dragged down the broader S&P 500 software and services index.

Mixed global signals

Overseas tech stocks painted a mixed picture.

• London Stock Exchange Group jumped 6.4%

• RELX climbed 2.4%

• Wolters Kluwer added 1.5%

In contrast, India’s software exporters index — home to HCL Technologies and Wipro — fell another 0.7%, a day after plunging 6% in its worst session in nearly six years.

Thomson Reuters, which owns the Westlaw legal database and the Reuters news agency, gained 3.1% after reporting largely in-line quarterly results. The stock had earlier suffered a record one-day drop amid concerns that AI tools like Anthropic’s Claude could disrupt its legal research business.

AI disruption worries

Investors are increasingly questioning whether generative AI could erode the steady, compounding earnings that software subscription businesses have historically delivered.

“The market is putting a question on the earnings-compounding nature of software companies — whether that gets disrupted,” said Manish Kabra, lead U.S. equities and multi-asset strategist at Societe Generale. “At the moment, we have not suggested people to buy software for that reason. I think a lot of cyclical sectors will do better.”

Rotation out of tech

The selloff coincides with a broader market rotation away from high-growth technology names and into value-focused sectors such as:

• Consumer staples

• Energy

• Industrials

These areas had lagged during the tech-led bull run that began in late 2022.

Meanwhile, Alphabet fell 2.6% after warning its capital spending could nearly double this year, raising concerns about the payoff from massive AI investments.

Volatility and leverage risks

Market volatility has surged across equities, commodities and digital assets, with traders pointing to leveraged investors unwinding positions.

Precious metals like gold and silver resumed declines after a historic selloff earlier in the week.

“There’s a lot of relative bets out there going wrong, and then there’s some kind of reset going on in the market internals,” said John Hardy, Saxo’s global head of macro strategy. “There’s a lot of leverage in this market… so forewarned is forearmed.”