Software stocks continue to face mounting pressure as concerns about artificial intelligence disruption intensify, with the sector now serving as a primary target for investors retreating from technology holdings. The most popular software sector ETF has plummeted to its lowest level since 2023, according to recent market data, while Wall Street analysts have begun slashing price targets across the industry. This deteriorating outlook comes just weeks after the software industry was initially flagged as particularly vulnerable to AI-driven transformation.
The selloff accelerated on Monday as uncertainty surrounding US tariff policies triggered broader market anxiety. Adding to investor concerns, a widely circulated report from Citrini Research outlined a bearish scenario for US markets and the economy centered on AI-driven job displacement.
Software Stock Decline Reflects Growing AI Disruption Fears
The software sector has become what analysts describe as a “lightning rod” for risk-off sentiment related to artificial intelligence. When investors shift to safe-haven assets and rotate out of technology holdings, software companies are typically the first to be sold, according to market observers. The sector’s reputation as vulnerable to AI disruption now precedes it, creating a self-reinforcing cycle of negative sentiment.
The Citrini Research report presented a thought-experiment scenario in which AI drives large-scale white-collar job displacement. According to the firm, such displacement could destroy consumer demand and trigger downturns in both markets and the broader economy. The report treated the decline of software as a foregone conclusion and a formative event for a potential AI bubble spanning multiple sectors.
Private Credit Exposure Adds Another Layer of Risk
Meanwhile, the software stock selloff has begun intersecting with concerns about private credit markets. Many software companies identified as vulnerable to AI disruption carry significant debt loads, with much of that debt held by private credit lenders. The Citrini report dedicated an entire section to systemic credit risk stemming from these exposures.
Ben McMillan, chief investment officer at IDX Advisors, told Business Insider that he views lax private-market underwriting as something that could eventually create problems. Additionally, the combination of high debt loads and potential revenue pressures from AI competition creates a particularly challenging environment for leveraged software companies.
AI Scare Trade Expands Beyond Software Stocks
However, software is far from the only sector experiencing pressure from AI disruption concerns. Insurance brokers, real estate services companies, and wealth managers have all suffered significant declines in recent weeks as investors identify additional industries potentially vulnerable to artificial intelligence transformation. The so-called AI “scare trade” has expanded to encompass a broader swath of the market.
In contrast to earlier enthusiasm about AI beneficiaries, investors are now focusing intensely on potential losers. This shift in sentiment represents a fundamental change in how markets are processing the implications of artificial intelligence technology. The software sector’s role as the ringleader of this defensive positioning appears firmly established.
Nevertheless, market participants emphasize that software stocks remain critical to monitor as a bellwether for the broader AI trade. The sector’s current role as a punching bag makes it even more important to watch for signals about investor sentiment toward technology and artificial intelligence. According to industry observers, further deterioration in software stocks could signal broader concerns about AI-driven disruption spreading to additional sectors.
Market analysts have not indicated when the software stock selloff might stabilize, and the sector’s performance will likely remain closely tied to evolving perceptions about AI disruption risks. The intersection of tariff uncertainty, AI concerns, and private credit exposure creates an unusually complex backdrop for assessing the industry’s near-term prospects.
