this unyielding The sell-off in software stocks has rattled technology investors, who are spending money to prevent another sharp decline.
There is good reason for this concern. Software stocks plunged again on Wednesday, with the Goldman Sachs software basket falling for the seventh consecutive time, taking the full-year decline to 19%. The slump spilled into broader tech sector indicators, weighing on stocks Nasdaq So far in 2026, the 100 Index is down 1.4%.
The uncertainty sent the Invesco QQQ Trust Series 1 ETF down 10%, surging to its highest level since March 2020 against rebound bets, according to data compiled by Bloomberg. Meanwhile, implied volatility in the iShares Expanded Tech-Software Sector ETF reached its highest level since the tariff storm in April, pushing option premiums higher.
Despite signs that the sell-off has gone too far, the industry turmoil caused by artificial intelligence applications has become severe enough that bottom pricing has become a concern.
“The question is how low can you go?” said Michael Bailey, director of research at wealth management firm FBB Capital Partners. “Investors hate software, that’s obvious.”
This brought a brutal reckoning to the industry’s heavyweights, not least Microsoft company, Oracle company, salesperson company and Palantir Technology Both have seen their share prices fall by double digits this year as investors grow increasingly concerned that artificial intelligence tools will disrupt their businesses.
The risk-off momentum continued Thursday, with Nasdaq 100 futures down 0.7% at 8:09 a.m. in New York. S&P 500 futures fell 0.4%.
And then there are adobe Inc., the owners of Photoshop and the inventor of the .pdf file format. Some investors see its valuation bottoming out and its 20% year-to-date share price decline as a harbinger of the impending fate of its peers.
“Adobe, is that the canary in the coal mine?” Bailey said. “Will the entire software industry trade at this level? If so, watch below. This is a considerable risk.”
While insurance against this outcome would soften any blow, Citigroup Inc. says the best approach is to try to identify winners and losers.
“We’re past the point where you can trade AI as a whole and you have to start picking your spots,” he said. The old dichotomy of hardware versus software is being broken down. “It’s not even hardware versus software anymore, it’s hardware memory versus other memory, semi-capacitive devices versus chipmakers.”
For now, investors don’t seem that keen. one Goldman Sachs Group The corporate basket of software companies has now lost $2 trillion in value, or about 30%, from the highs it reached last year. Hedge funds are also unwinding positions. Software is by far the largest subsector by net sales, according to Goldman Sachs’ prime brokerage unit. Net software exposure ultimately hit a record low of 4.2%, compared with 7% at the start of 2026 and a record peak of 17.7% last week.
“While software is now in a bear market and has entered oversold territory, no one has yet stepped in to defend the complex and buyers continue to remain wary,” the bank’s trading desk wrote in a note to clients on Tuesday.
Bailey said Salesforce’s upcoming earnings report on February 26 will be a crucial test. If the enterprise software giant beats expectations, it could mark at least a pause in the rout, if not an outright reversal.
Even if Salesforce achieves this goal, there’s still the issue that AI could pose an existential threat to some software companies.
“The reality is we need to find out which companies are actually going to outperform and which companies are going to deliver ultimate value,” Vivek said.