As software stocks tumble, analysts are weighing whether the decline in Microsoft and its peers is a risk or an opportunity.
Software stocks are falling.
As of February 19, Microsoft stock is down 28% from its all-time high last fall. Oracle stock is also down 55% from its all-time high in late 2025. Salesforce stock has lost 27% of its value this year.
Analysts have offered conflicting and somewhat contradictory theories regarding the software sale. According to one theory, stock traders fear that artificial intelligence will make software companies’ products obsolete and put them out of business. Another narrative suggests that software companies are overspending on AI and not getting enough return on their investments.
In other words, software stocks are falling either because AI is a game changer or because it isn’t. Neither theory is correct.
Software stocks are falling. Has the AI bubble burst?
Whatever the trigger, the software crash is caught up in a larger debate about the so-called AI bubble. The AI bubble is a dramatic rally in technology stocks fueled by excessive enthusiasm about the promise of artificial intelligence.
The S&P Software & Services Index, which tracks software stocks, will fall nearly 20% in 2026. The broader, tech-heavy Nasdaq index is down an even smaller 2.4% since the beginning of the year.
“We’re seeing a lot of really good companies getting really indiscriminately hammered,” Motley Fool senior investment analyst Jason Moser told USA TODAY.
Moser and others say the reversal of fortune is all the more remarkable because software stocks were Wall Street’s darlings for years before the rise of AI.
From early 2016 to late 2021, the S&P Software Index quadrupled, rising from less than 4,000 to more than 16,000. In the age of super-fast internet and cloud computing, software stocks looked like a solid investment.
“At some point, software is going to eat the world,” said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute. “These companies basically ruled the world.”
Will software stocks survive the AI revolution?
The AI revolution probably began in November 2022 with the introduction of ChatGPT, an AI-powered chatbot that can answer user questions with conversational text.
Initially, Wall Street hailed AI as a tool that would improve productivity for everyone, including software companies.
“The advent of AI looks like it’s going to be a rising tide that lifts all boats in the technology space,” Samana said. But over time, AI experiments began to look more like “winner-take-all.”
Software stocks plunged in late 2025 as part of a broader shift away from tech stocks due to concerns about an AI bubble.
Almost anyone can create software using “vibe coding”
Software sales accelerated in January amid a wave of enthusiasm for Anthropic’s Claude Code. This is an AI product that reportedly allows users with no coding experience to create their own software, a trend known as “vibe coding.”
What would happen to software companies, stock traders reasoned, if the average American worker could write his own software?
“Rather than buying a ready-to-use system, you can use artificial intelligence to create your own applications,” said James Cox, managing partner at Harris Financial Group.
“Investors are becoming increasingly concerned about industries being disrupted by AI,” Cox said. “And obviously software is part of that.”
Wall Street remains bullish on the big promise that AI holds to transform American workplaces and American homes.
But in recent weeks, stock traders have seemed less enraptured by the promise of AI and increasingly worried about the jobs and products it might consume.
For software companies, investors are now worried that “the software they’re building is actually going to put them out of business,” said Caleb Silver, editor-in-chief of Investopedia.
For everyday investors, this drop in stock prices raises important questions. “Is now a good time to invest in software companies?” How to buy the dip?
When will the software stock crash end?
Analysts caution against predicting when or why the decline will end.
“I think this is something that will probably linger for a while,” Moser said.
But he and other stock experts say falling stock prices don’t necessarily mean big software companies are facing an existential crisis over AI.
Microsoft, for example, remains one of the most touted stocks on Wall Street. There are probably few analysts who predict that AI will disrupt businesses. And the company’s stock is currently selling at a 28% discount.
“This is a gift,” Cox said. “We can now acquire these companies at significantly lower revenue multiples than we could have done six months ago.”
But don’t expect software stocks to stay the same. The days of software companies “eating the world” may already be over.
“These stocks have brought in huge profits,” Silver said. “Accept the fact that you may not be able to generate the same profits for the next 10 years.”
