Published by Global Banking & Finance Review®
Posted on February 5, 2026
5 min readLast updated: February 6, 2026
Add as preferred source on GoogleUS software stocks stabilize after a selloff due to AI disruption fears. Investors assess the impact on traditional software and subscription businesses.
By Medha Singh and Saqib Iqbal Ahmed
Feb 5 (Reuters) - Shares of U.S. software and data services companies extended their tumble for a seventh straight session on Thursday as investors worried that fast-advancing artificial intelligence tools could upend the sector.
The S&P 500 software and services index dropped 4.6%, having shed about $1 trillion in market value since January 28, in a selloff dubbed "software-mageddon."
Some of the big tech names hurt most by the rout included ServiceNow, which fell 7.6%, Salesforce, which slipped 4.7%, and Microsoft, which sank 5%.
"I would classify this as a sell-everything mindset at this point," said Dave Harrison Smith, chief investment officer and head of technology investing at asset management firm Bailard.
Canada-based Thomson Reuters, which suffered a record one-day plunge earlier this week after investors raised concerns that a new plug-in from Anthropic's Claude could disrupt its legal business, fell 5.6% despite raising its dividend and reporting fourth-quarter results largely in line with estimates.
The company, which owns the Westlaw legal database and the Reuters news agency, said it was seeing tangible benefits from AI investments.
"The uncertainty around the eventual impact of AI means near-term earnings results will be important signals of business resilience, but in many cases insufficient to disprove the long-term downside risk," said Ben Snider, Goldman Sachs' chief U.S. equity strategist.
That uncertainty has also kept dip buyers at bay.
"There has not been dip-buying ... but we are reaching a watershed moment," said Nick Giorgi, chief equity strategist at Alpine Macro.
On Thursday, the S&P 500 software and services index traded about 21% below its 200-day moving average, the farthest the index has fallen below that key technical level since June 2022.
"We're talking about multi-decade washouts right now ... generally, it actually tends to be a pretty good entry point," Giorgi said.
Bailard's Smith said the selloff likely created opportunities for stock pickers but warned against expecting a quick rebound.
"Calling the bottom during a crash in sentiment like this is very, very challenging," he said.
ROTATION OUT OF TECH INTENSIFIES
The software selloff has come alongside a broader rotation out of technology and into value-oriented sectors such as consumer staples, energy and industrials, which were laggards in the bull market that began in October 2022.
"We're seeing people de-risk from technology in a general way, and we've been seeing that since the beginning of the year," said Andrew Wells, chief investment officer at SanJac Alpha in Houston.
Reflecting the bearish mood, short interest on mid- to large-cap software companies has been rising over the past three months, according to data analytics company Ortex, with cybersecurity and SaaS (Software as a Service) firms seeing the biggest jump in such bearish bets.
Goldman Sachs data showed a sharp recent decline in hedge funds' exposure to software companies, although the funds remained net long on the industry.
"After years of tech-driven market leadership, the balance of power is shifting as investors rotate toward traditional 'old economy' sectors," Angelo Kourkafas, senior global investment strategist at Edward Jones, said in a note.
UNWINDING OF LEVERAGED POSITIONS ADDS TO PRESSURE
The selloff also spread to sectors exposed to software companies, such as asset management firms, on concerns they extended loans through private credit.
Alternative asset manager Blue Owl, which was on track for its 11th straight session of declines, said on a post-earnings call its total exposure to the software sector accounts for 8% of its assets under management.
The performance of overseas tech stocks was mixed. Shares of London Stock Exchange Group ended 5.8% higher, while data analytics firms RELX rose 2.9% and Netherlands-based Wolters Kluwer gained 2%.
In contrast, India's software exporters index, which houses names such as HCL Technologies and Wipro, slipped 0.7%, a day after plunging 6% in its worst session in nearly six years.
VOLATILITY SPREADS ACROSS MARKETS
Market volatility has shot up across equities, commodities and digital assets in recent weeks, which market participants attribute to leveraged investors being forced to rapidly unwind positions.
Wall Street's most watched gauge of investor anxiety, the Cboe Volatility Index, rose 3.13 points to finish at 21.77, its highest close since November 21.
Precious metals gold and silver resumed their slide on Thursday after a historic rout earlier this week, and bitcoin fell 13% to $62,890.
"This is a lot of relative bets out there going wrong, and then there's some kind of reset going on in the market internals, but time will tell," John Hardy, Saxo's global head of macro strategy, said on a podcast.
(Reporting by Saqib Iqbal Ahmed in New York and Medha Singh in Bengaluru; additional reporting by Chibuike Oguh in New York, Vidya Ranganathan in London and Johann M Cherian in Bengaluru; Editing by Tasim Zahid, Shinjini Ganguli, Anil D'Silva, Nick Zieminski, Rod Nickel)
Artificial intelligence (AI) refers to the simulation of human intelligence in machines programmed to think and learn like humans. AI can perform tasks such as problem-solving, understanding language, and recognizing patterns.
Market volatility refers to the rate at which the price of a security increases or decreases for a given set of returns. High volatility indicates a higher risk, while low volatility suggests stability.
A software stock is a share in a company that develops or sells software products or services. These stocks are often influenced by technological advancements and market demand for software solutions.
Investor sentiment is the overall attitude of investors toward a particular security or financial market. It can be influenced by news, economic indicators, and market trends.
A subscription business model is a revenue model where customers pay a recurring price at regular intervals for access to a product or service, often seen in software and media industries.
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