Software earnings season has taken a sharp turn. Strong results and solid guidance are no longer enough to lift shares as investors grow more worried that AI could reshape, or shrink, the long-term profit pools of traditional software companies.
Good numbers, bad reactions
Microsoft $MSFT ( ▼ 0.74% ) and ServiceNow $NOW ( ▲ 0.24% ) both delivered healthy quarterly results, yet their stocks were hit hard. The selloff then spilled across the sector, dragging down names like Atlassian $TEAM ( ▼ 1.83% ) , Workday $WDAY ( ▲ 0.56% ) , Salesforce $CRM ( ▼ 0.84% ) , Datadog $DDOG ( ▲ 0.89% ) , and Intuit $INTU ( ▼ 0.81% ) .
The message from the market is clear: near-term performance matters less than fears that AI tools and agents could eventually replace or compress parts of today’s software stack.
Sector-wide pressure builds
The broad-based selling pushed software-focused ETFs sharply lower, marking one of the worst days for the group in years. Traders appear to be rotating away from companies seen as vulnerable to AI disruption, even if those businesses are still posting solid growth today.
That kind of blanket selling suggests sentiment has shifted from selective caution to broad skepticism.
Echoes of past tech cycles
The magnitude of the underperformance relative to the broader market has drawn comparisons to earlier periods when tech leadership rotated sharply. While some companies may ultimately benefit from AI rather than be hurt by it, the current mood shows investors are not waiting around to find out.
For now, the software sector is being judged not on what it just delivered, but on what AI might do to it next.