Software stocks plunge as AI competition from Anthropic sparks worst sector start since 2022
Software stocks fell sharply in early 2026, marking the sector’s worst start since 2022. A Morgan Stanley SaaS tracker slid about 15% in January following an 11% drop in 2025. The selloff intensified after Anthropic launched Claude Cowork on Jan. 12 — a rapid-build AI tool that generates spreadsheets from screenshots and drafts reports from scattered notes — heightening investor fears of disruptive competition. Major software names hit steep declines: Intuit fell 16% over a week (its worst drop since 2022), while Adobe and Salesforce each dropped about 11%. Analysts say many buy-side investors currently see limited reasons to hold software stocks despite recurring revenue models and profit margins. Earnings outlooks diverge: Bloomberg Intelligence forecasts S&P 500 software profit growth slowing to 14% in 2026 from ~19% in 2025, whereas semiconductor profit growth is expected to accelerate to 59% in 2026, buoyed by big cloud providers’ AI infrastructure spending. Valuations for the Morgan Stanley software basket trade near 18x forward earnings — a record low versus a decade average above 55x. Some analysts remain cautiously optimistic, arguing lower valuations and steady client spending could create selective buying opportunities, while others warn existential AI threats persist. Key takeaways for traders: increased volatility in software stocks, potential rotation into semiconductors and AI-infrastructure names, and selective long opportunities where fundamentals remain intact.
Bearish
The immediate market reaction is bearish because Anthropic’s Claude Cowork revived fears that fast-moving AI entrants can undercut incumbents’ recurring-revenue models. The sector’s SaaS tracker down ~15% in January, major single-stock drops (Intuit -16%, Adobe & Salesforce ~-11%), and sharply reduced forward multiples (18x vs decade average >55x) show investors are re-pricing software risk. Meanwhile, semiconductor and AI-infrastructure names have clearer revenue paths backed by big cloud customers, attracting capital away from software. Short-term impact: higher volatility, sector-wide downside pressure, and likely rotation into chipmakers and AI-infra stocks. Traders should expect continued headline-driven swings and potential oversold bounces in select software names. Long-term impact: structural uncertainty remains until incumbents prove scalable AI-driven revenue gains; if software firms successfully monetize AI, sentiment could reverse and valuations recover — otherwise, persistent discounting and capital reallocation toward infrastructure and specialized AI suppliers may continue. Historical parallel: major tech re-ratings occur when disruptive tech (e.g., cloud shifts, mobile-first transitions) threatens incumbents; initial panic often overstates permanent damage, but persistent execution gaps can produce lasting underperformance.