Software and data stocks took their worst beating in years Tuesday, with Adobe down 7.3%, Salesforce dropping 6.9%, and Thomson Reuters plunging 15.8%. The trigger: growing conviction that new AI capabilities will directly replace the products these companies sell.
The contagion spread beyond public tech stocks. Private equity firms with software-heavy portfolios, including Ares and Apollo, saw sharp declines as investors repriced assets built on recurring software revenue assumptions. Blue Owl Capital led private market firms caught in the downdraft.
The panic started with Anthropic's legal workflow AI, which prompted immediate questions about who needs LegalZoom or specialized legal software if AI can draft contracts and file documents. That logic cascaded across every software category from travel booking to marketing automation.
Nvidia CEO Jensen Huang pushed back, dismissing fears that AI would eliminate software tools entirely. Markets weren't convinced. The underlying concern is structural: if AI can generate code, analyze data, and automate workflows natively, the traditional SaaS model looks vulnerable.
What makes this selloff different from previous tech corrections is the speed at which assumptions are changing. Three months ago, software companies positioned AI as an add-on feature to justify price increases. Now investors are asking whether the entire product needs to exist.
The math is brutal for funds that loaded up on software assets at peak valuations. If recurring revenue models compress because customers can achieve similar outcomes with general-purpose AI at commodity pricing, those portfolio values need serious haircuts.
History suggests some fears will prove overblown. Software didn't disappear when open source threatened commercial licenses, and SaaS survived the initial skepticism. The difference this time: the technology threatening displacement is advancing faster than incumbents can adapt.
MediaTek flagged supply chain pressures from AI chip demand and signaled price adjustments coming. That's a second-order effect worth watching. If AI infrastructure costs stay high while software pricing comes under pressure, something has to give.
The selloff matters beyond public markets. Enterprise software purchases are already slowing as CTOs wait to see which tools survive AI integration. That freeze affects everything from startup funding to private equity exits.