New York: U.S. software stocks experienced a sharp decline on Thursday after earnings reports and forecasts from major enterprise software companies intensified concerns that artificial intelligence (AI) could dramatically reshape the sector. Investors reacted nervously to weaker-than-expected growth projections and the growing threat posed by AI-driven competitors, prompting broad losses across the Nasdaq and other technology indices.
The sell-off was triggered in large part by SAP, Germany’s enterprise software giant, whose shares dropped nearly 15% after issuing a cautious cloud revenue forecast for 2026. Analysts noted that the company’s cloud backlog, a key indicator of future revenue, failed to meet expectations, raising concerns about the ability of traditional software providers to compete with more agile AI-focused firms. ServiceNow also saw its stock fall roughly 10%, despite exceeding subscription revenue forecasts, highlighting investor anxiety over the wider sector’s exposure to disruptive technologies.
Market strategists suggested that the reaction reflects a broader skepticism toward legacy software companies. While the AI revolution promises long-term growth opportunities, it also presents immediate challenges to established players that must balance investment in innovation with near-term profitability. “The market is pricing in a worst-case scenario where traditional software may be displaced by AI-driven solutions,” said an industry analyst.
Other software heavyweights were not spared in the sell-off. Salesforce lost over 5% of its value, while Adobe and Datadog recorded significant declines amid heightened concern that AI could erode their competitive advantage. Microsoft, despite reporting record AI-related investments, saw its stock fall nearly 10% due to slower-than-expected growth in its cloud division, signaling that even firms leading the AI charge are under investor scrutiny.
The sector-wide decline pushed the S&P 500 Software and Services Index down by approximately 6.5%, underperforming the broader S&P 500, which posted modest gains on the same trading day. Analysts attributed the downturn to a combination of high valuations, AI-induced uncertainty, and market expectations that software companies must rapidly adapt or risk losing ground to innovative challengers.
Experts noted that the AI boom is reshaping the competitive landscape. While infrastructure and cloud service providers stand to benefit directly from AI adoption, traditional enterprise software firms face pressure to integrate AI into their offerings quickly or risk obsolescence. The sell-off illustrates how market sentiment can pivot sharply in response to both earnings signals and broader technological disruption.
Overall, Thursday’s trading highlighted the growing unease among investors about the future trajectory of the software industry in an AI-dominated era. The results from SAP and ServiceNow have served as a stark reminder that even established technology giants are not immune to the transformative effects of generative AI, prompting a reassessment of risk, valuation, and long-term strategy across the sector.