Key Takeaways:
Software stocks fell broadly on July 9, extending a selloff that has erased hundreds of billions in market value from the sector this year.
ServiceNow Inc. led the decline, dropping 3.4%, while Adobe Inc. fell 2.1%, Atlassian Corp. slid 2.2%, Intuit Inc. lost 2.3% and AppLovin Corp. declined 2%. The synchronized move pushed the iShares Expanded Tech-Software Sector ETF down 1.8% in afternoon trading, adding to a year-to-date loss of more than 15%.
"The market has gone too far in punishing software," Richard Windsor, founder of Radio Free Mobile, said on Bloomberg Horizons Middle East & Africa on July 3. "The general view is the software sector is dead because everyone is going to run AI and will no longer have to buy software. I think that's taking it too far."
The selloff comes despite accelerating AI-driven revenue growth at several of the affected companies. Salesforce Inc., which closed at $166.11 on July 2, reported Agentforce annual recurring revenue of $1.2 billion, up 205% year over year, and combined Agentforce plus Data 360 ARR of nearly $3.4 billion. Adobe posted record revenue of $6.62 billion in its fiscal second quarter, with AI-first ARR tripling year over year to exceed $500 million. Both stocks trade near multiyear lows — Salesforce at 12 times forward earnings and Adobe at 9 times, with a price-to-earnings-growth ratio of 0.58.
Why software is getting sold, not bought
The rotation out of software and into semiconductor stocks has been one of the defining trades of 2026. Nvidia Corp. shares surged 85% in fiscal Q1 2027 on data center revenue of $75.25 billion, while Micron Technology Inc. posted revenue of $41.46 billion in its fiscal third quarter, up 345.7% year over year. Investors have piled into hardware beneficiaries of AI infrastructure spending while dumping application-layer names perceived as vulnerable to disruption.
Windsor pushed back on that logic, arguing that compute demand remains so extreme that it validates the entire AI stack. He pointed to Micron's premium pricing and the rates private compute reseller Axiom charges both Anthropic and Google as evidence of "a market where there is extreme shortage of compute." Nvidia CEO Jensen Huang described the buildout of AI factories as "the largest infrastructure expansion in human history" in the company's Q1 earnings release.
Valuation disconnect or value trap?
For investors, the question is whether beaten-down software valuations reflect a structural threat or a cyclical overreaction. ServiceNow, which reports fiscal Q2 2026 earnings on July 22, expects subscription revenue of $3.815 billion to $3.820 billion, up 22.5% year over year. Guggenheim upgraded the stock to Buy on July 2 with a $125 price target, calling it an attractive buying opportunity at current levels.
Tech investor Dan Niles described the broader AI-related selloff as a "speed bump" rather than a reversal, comparing the current cycle to the internet infrastructure boom of the late 1990s when semiconductor stocks experienced steep corrections before climbing to much higher levels.
The risk is that software companies face a longer adjustment period if enterprises redirect IT budgets toward AI infrastructure at the expense of traditional application licenses. But with Adobe and Salesforce generating measurable AI ARR today — and trading at single-digit forward earnings multiples — the market may already be pricing in a worst-case scenario that has not materialized.
This article is for informational purposes only and does not constitute investment advice.
