The Great Software Selloff Created Bargains Hiding in Plain Sight
Software stocks just suffered one of their harshest selloffs on record — but the fallout may be opening doors to opportunities. The S&P North American Technology Software Index briefly dipped below 20x forward earnings for the first time, with valuations now sitting near 23x versus its long-term average of 34x. Even so, strategists say the damage reflects forced de-risking, not weaker fundamentals — leaving high-quality software names mispriced after weeks of indiscriminate selling.
Hitting rock bottom: The selling has been so widespread that Jefferies says 42% of the 64 software companies it tracks are trading at or near record-low valuations. That shows investors are unloading the sector as a whole instead of picking winners. Goldman’s David Solomon called the selloff “too broad,” while Janney’s Mark Luschini said traders are acting like “software is on a straight line to zero.” Both suggest conditions may be ripe for a counter-trend bounce. Jefferies’ Michael Toomey put it bluntly: the setup could spark a vicious software rally.
- MicrosoftMSFT, ServiceNowNOW, and SalesforceCRM are being flagged as long-term compounders caught in the selloff.
- Even SnowflakeSNOW — down 27% in six sessions — still gets Jefferies’ vote as a top AI beneficiary after securing $200M+ multi-year deals with OpenAI and Anthropic.
The Consumption Gap
The market’s mistake was treating all software the same — even though they’re two very different kinds of businesses. Some software is built for humans to click — think dashboards and seats at Salesforce or Monday.comMNDY, where revenue depends on people logging in. Other software is built for machines to call — infrastructure like CloudflareNET, MongoDBMDB, and DatadogDDOG, which charge per API call, query, or event. That distinction matters because AI agents reduce the need for human seats but massively increase machine usage.
- One person might click a few times an hour, while a single AI agent can trigger hundreds of calls a minute — and usage-based platforms get paid more as those bots get busier.
- That same shift is putting pressure on IT services built on labor arbitrage, as firms like InfosysINFY, CapgeminiCAPMF, and CognizantCTSH face lower demand as AI replaces billable hours — setting up 12–24 months of estimate cuts while API-driven infrastructure outperforms.
Through the smoke: The market has priced in speculative AI disruption without distinguishing between companies positioned to benefit and those genuinely at risk. Infrastructure providers charging per API call are essentially tollbooth operators — and as AI agents multiply, traffic through those tollbooths will surge. The names trading at historic lows today may be tomorrow’s comeback stories — if investors can separate the road workers from the toll takers.