The new year has not brought the anticipated rebound for beleaguered software stocks, which have faced their weakest start since 2022, driven by concerns over AI advancements. Following Anthropic’s introduction of its AI tool, interest in software companies has plummeted. Intuit saw a 16% drop, while Adobe and Salesforce fell over 11%. Morgan Stanley’s software-as-a-service index has declined approximately 15% this year, echoing an 11% fall in 2025. Investors express uncertainty; many see no catalysts for recovery. The competitive landscape is shifting as nimble AI startups threaten traditional models. Leading tech names are struggling to exhibit growth, with projected earnings for software firms expected to slow to 14% in 2026. In contrast, semiconductors like Nvidia are thriving, supported by predictable demand. Despite low valuations in the software sector, which now trade at 18 times projected earnings—a record low—some analysts remain cautiously optimistic about a potential recovery by 2026.
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