U.S. software stocks experienced a sharp decline on Tuesday, triggered by reports regarding a new artificial intelligence (AI) tool from Amazon that reignited fears of disruption within the sector. Data from Zhitong Finance indicated that an exchange-traded fund (ETF) tracking software stocks fell by 4.3%, marking its most significant drop in a month. Among the hardest hit were UiPath and HubSpot, both plummeting by approximately 9%, while Atlassian, the parent company of Trello, saw a decline of 8.4%.
Sources familiar with the developments revealed that Amazon Web Services (AWS), the tech giant’s cloud computing unit, is working on an AI agent designed to automate certain functions within sales and business development teams—departments recently impacted by large-scale layoffs. This agent could handle workloads traditionally managed by thousands of technical experts in fields like cybersecurity and server network management.
Software stocks have faced ongoing pressure this year, as new AI tools from startups such as Anthropic raised concerns about the future of traditional software companies. The iShares Expanded Tech-Software Sector ETF has dropped more than 23% since the end of 2025, heading toward its worst quarterly performance since 2008. In a notable development, Anthropic announced that its Claude chatbot can now control users’ computers for tasks such as web browsing and spreadsheet management. This progress has intensified anxiety in the U.S. private equity sector, which has suffered from redemption pressures largely due to significant exposure to software stocks. Both Ares Management and Apollo Global Management are currently restricting redemptions from their private credit funds, following a surge in withdrawal requests fueled by fears of rising risks associated with lending to software companies vulnerable to AI-driven disruptions.
Despite the prevailing anxiety surrounding the software sector, Wedbush analyst Dan Ives, a prominent voice in the market, recently suggested that the ongoing sell-off in software stocks may be overstated. He labeled the current downturn as the “most disconnected” technology trade he has observed in the last 15 to 20 years. Ives argued that the market’s fears concerning AI disrupting traditional software companies have been exaggerated, leading to what he termed “AI ghost trades” that have unjustly penalized the sector.
Ives emphasized that software remains crucial for various applications, from Salesforce to ServiceNow, and underlined the importance of established software platforms in ensuring cybersecurity, citing companies like CrowdStrike. He articulated that while AI may challenge some software vendors that rely heavily on single-product offerings, the core value and data are embedded within the technology stacks of established companies. Ives projected that 30% of AI spending would ultimately benefit software firms, indicating that companies like Palantir have already begun to demonstrate monetization potential.
He also anticipates industry consolidation, suggesting that bearish sentiment among market participants, including taxi drivers in Miami, could signal a turning point for the software sector this year. Earlier in February, Ives had cautioned that while AI poses short-term challenges for traditional software models, the market’s reaction appeared excessively harsh. He noted that the current downturn has factored in extreme assumptions of widespread disruption from AI, which he views as unrealistic.
Ives highlighted that enterprise customers are more cautious about transitioning to AI than the market assumes. Many organizations are hesitant to expose core data to untested platforms in search of AI benefits and are unlikely to abandon decades-old software infrastructure valued in the hundreds of billions. He asserted, “There is no doubt that AI poses headwinds in the short term, but the market is pricing as if the software industry is facing an apocalypse, which, in our view, is completely detached from reality.”
Wedbush further noted that the extensive enterprise software ecosystem has amassed trillions of data points, making it difficult for emerging AI companies like OpenAI and Anthropic to fully replace these complex systems in the near term. Instead, AI is more likely to be integrated as an “embedded tool” within existing software platforms. Firms like Microsoft, Palantir, CrowdStrike, Snowflake, and Salesforce were highlighted as the top software stocks worth holding amid the ongoing “software winter.”
Concerns about AI supplanting software tools were also dismissed by NVIDIA CEO Jensen Huang, who classified such fears as “illogical” during an event hosted by Cisco. Huang insisted that AI will continue to rely on existing software and will not reconstruct foundational tools from scratch. Similarly, strategists at JPMorgan observed that the long-term impact of AI on traditional software companies remains uncertain, but current market pessimism has reached an “overreaction.” They noted that firms like Microsoft and CrowdStrike are expected to gain from AI-driven efficiency improvements due to high switching costs and multi-year contracts that provide a buffer against immediate shocks.
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