Software stocks lose steam as AI shifts investor bets

Software’s long streak as a Wall Street favorite is wobbling as artificial intelligence resets ￰0￱ Inc., Adobe Inc., and ServiceNow ￰1￱ among the S&P 500’s weakest names this year, each down at least 16%, wiping out roughly $160 billion in combined market ￰2￱ pulled money from the software and services group for two consecutive months through June after just one monthly drawdown in the prior 18. “Tech obsolescence can come out of nowhere,” said Robert Ruggirello, chief investment officer at Brave Eagle Wealth Management. “There’s good reason people are growing cautious.” Not all software stocks are suffering Microsoft Corp., Oracle Corp., and Palantir Technologies Inc., all software makers, are among the year’s top performers in the S&P ￰3￱ separates them, in many investors’ eyes, is that they are playing offense with AI rather than just defending existing franchises, as the largest tech companies spend tens of billions of dollars to roll out products and add capacity for AI ￰4￱ Platforms ￰5￱ seeing accelerating revenue growth as its AI efforts improve ad targeting and user engagement.

Palantir’s AI products are expected to help fuel sales growth of 45% this ￰6￱ names such as CrowdStrike Holdings ￰7￱ also thrived, backed by the view that AI cannot easily replace their core ￰8￱ strain is not limited to the ￰9￱ SE, Europe’s biggest company by market value, fell alongside smaller peers such as Sage Group Plc and Dassault Systèmes SE after Monday. com’s ￰10￱ OpenAI’s ChatGPT now boasting roughly 700 million weekly users, Ruggirello likens software vendors to “an energy company waking up and realizing there’s now a company the size of Exxon it’s competing with.” That worry shows up in ￰11￱ Morgan Stanley software basket traded this month at 23 times projected earnings, half the average of the past decade and the lowest level in Bloomberg data back to ￰12￱ comparison, the Nasdaq 100 changes hands at just under 27 times forecast ￰13￱ on Wall Street see opportunity in the ￰14￱ at UBS said earlier this month that the selloff in parts of software could open doors, recommending that investors look at internet and software firms that have lagged the AI craze.

“While AI revenue growth has yet to match the industry’s aggressive spending, rising monetization and AI adoption trends have been encouraging,” strategists led by Ulrike Hoffmann-Burchardi, chief investment officer Americas and global head of equities, wrote in a ￰15￱ so, wariness is hard to ￰16￱ the two decades before the 2021 market peak, no S&P 500 industry group lifted its weight as much as software and services, climbing from less than 6% to nearly 14.5%, even after Google, Facebook, and ￰17￱ were moved to other sectors in ￰18￱ group’s share now sits around 12% and has been eclipsed by semiconductor companies benefiting from surging demand for computing ￰19￱ not for the outperformance of Microsoft, Oracle, and Palantir, the sector’s weight would be lower.

“The perception is that risk has gotten much higher, and we’re not going to get clarity anytime soon,” Ruggirello said. “All we can really say right now is that a few companies like Meta and Microsoft seem to be winning, and they keep ￰20￱ certainly isn’t everyone.” If you're reading this, you’re already ￰21￱ there with our newsletter .