‘There’s no reason to own it’: Software stocks fall on fear of new AI tools

The new year was supposed to bring opportunities for struggling software stocks. In fact, the group is off to its worst start in years.

Startup Anthropic’s release of new artificial intelligence (AI) tools on January 12 reignited fears of disruption weighing on software makers in 2025. Intuit, which owns TurboTax, fell 16% last week, its worst decline since 2022, while Adobe and Salesforce, which makes customer relationship management software, both fell more than 11%.

Overall, the suite of software-as-a-service stocks tracked by Morgan Stanley is down 15% so far this year, following an 11% decline in 2025. This was the worst start to a year since 2022, according to data compiled by Bloomberg.

“The human news we’ve got highlights how difficult it is to assess what growth will look like,” said Brian Wong, portfolio manager at Osterweiss Capital Management, which has $7.9 billion in assets. “The pace of change is faster than I can remember, and that’s making things more uncertain than I can remember.”

Anthropic’s Claude Cowork service, released as a “research preview,” can create spreadsheets from screenshots and draft reports from various notes, according to the company. It was developed quickly, primarily using AI.

Although unproven, the tool represents exactly the type of functionality investors have been concerned about and strengthens a bearish position that appears to be growing stronger, said Jordan Klein, tech sector specialist at Mizuho Securities.

“Many buyers believe there is no reason to own software, no matter how cheap or even if the stock price falls,” Klein wrote in a Jan. 14 note to clients. “They’re assuming there’s no catalyst for Related at this point,” he said, referring to the possibility of higher valuation multiples.

The recent decline in stock prices has exacerbated an already widening gap between the performance of software companies and the rest of the tech sector. Concerns about competition from emerging AI services are overshadowing features such as large profit margins and recurring revenue that have long made the company attractive to market experts.

While the Nasdaq 100 index is hitting record highs, companies like ServiceNow are trading at their lowest levels in years. One problem is that most software makers aren’t giving their AI products much attention.

Salesforce has been touting the introduction of its Agentforce product, but there hasn’t been a significant change in revenue. Adobe builds generative AI capabilities into its photo and video editing software, but did not update some AI-related metrics in its last quarterly earnings report in December.

Wong said incumbents have advantages in areas such as distribution and data, but need to show accelerated growth for stock prices to recover. And that’s not likely to happen anytime soon.

Revenue growth for software and services companies in the S&P 500 index is expected to slow to 14% in 2026 from an expected 19% in 2025, according to data compiled by Bloomberg Intelligence. Elsewhere in technology, the fundamental picture remains positive.

Let’s take chip manufacturers as an example. With tech giants like Microsoft, Amazon.com, Alphabet, and Meta Platforms demonstrating commitments to aggressively invest in AI infrastructure this year, companies like Nvidia can now see revenue growth more clearly. Semiconductor stocks are expected to post nearly 45% earnings growth in 2025, accelerating to 59% in 2026, according to Bloomberg Intelligence.

“The reason chipmakers are outperforming is because their fundamentals have improved significantly and there is more certainty about growth given their customers,” said Jonathan Kofsky, portfolio manager at Janus Henderson Investors. “At the same time, there is much less certainty about how AI will change the software ecosystem.”

Meanwhile, software company valuations continue to decline. Morgan Stanley’s basket is priced at an all-time low of 18 times expected earnings over the next 12 months, well below the 10-year average of more than 55 times.

“Software companies had higher multiples because they were subscription-based and had recurring revenue that could be extrapolated almost forever into the future,” said Osterweiss Capital’s Wong.

“It’s hard to know what multiples to trade at when you’re up against an AI agent that runs 24/7 and has the ability to complete tasks by completing large projects in a day.”

But these valuation declines are one of several factors that have some on Wall Street expressing optimism about the sector’s recovery.

Barclays expects software stocks to “finally take a breather” in 2026 as customer spending remains stable and valuations are attractive. Goldman Sachs expects increased adoption of AI to provide further tailwinds for software companies by expanding the overall addressable market.

Prosecutor Davidson argues that 2026 is a good time to selectively regroup because the narrative has overwhelmed fundamentals for many software companies.

“We’re not in a position to say we’ve reached a tipping point because the existential anxiety around AI is going to continue for some time, but the sector is about to get more interesting,” said Chris Maxey, managing director and chief market strategist at $580 billion Wealthspire. “This group is not a blockbuster, but it’s getting close.”Bloomberg