Software Stocks Crash Into Bear Territory as AI Automation Threatens Revenue Streams

Software names are in their worst slide since the 2008 crisis as investors worry AI tools could replace parts of the software these firms sell. The iShares Expanded Tech-Software Sector ETFIGV

now sits ~23% below its recent peak, in bear market territory. The selloff reflects growing fears that low-cost AI automation could erode traditional subscription models, despite solid earnings.

• ServiceNowNOW
  is down 24% this month despite beating earnings and guidance, with analysts saying the results weren’t enough to improve sentiment on legacy app vendors.
• MicrosoftMSFT
  dropped nearly 12% during the same period as Azure growth stalled, deepening doubts around the payoff from AI spending.

The great rotation: While software names dominate the S&P 500’s worst performers this year, semiconductor stocks are leading instead. SandiskSNDK

, Western DigitalWDC

, and Seagate TechnologySTX

rank among the top gainers as investors favor AI infrastructure sellers over software integrators. ServiceNow CEO Bill McDermott argues AI still needs workflow software to deliver consistent outcomes — but whether investors buy that case is still an open question for the battered sector.