The Selloff
Software stocks are getting hammered. The S&P 500 software and services index lost more than $800 billion in market value over six trading sessions, driven by investor concerns that AI will cannibalize traditional subscription software revenue.
The WisdomTree Cloud Computing Fund is down nearly 20% year-to-date. Hedge funds have made $24 billion shorting software stocks as the sector shed $1 trillion in value, according to S3 Partners data. The tech-heavy Nasdaq Composite fell 1.5% Wednesday, heading for its worst week since November.
AMD shares dropped 17% after its Q1 guidance missed expectations, the chipmaker's worst single-day performance since 2017. Bitcoin fell below $70,000 for the first time since November 2024, another signal of risk-off positioning.
The AI Spending Question
Alphabet reported Q4 results that beat expectations, with cloud revenue ahead of forecasts. Then came the kicker: the company signaled capital expenditures could more than double in 2026 as it builds out AI infrastructure. Shares fell on the news.
This is the pattern emerging across Big Tech: massive AI infrastructure bets while enterprise software buyers grow cautious about traditional SaaS spending. CTOs watching this dynamic face a squeeze: pressure to justify AI investments while vendors' business models get questioned by their own investors.
What Enterprise Buyers Should Watch
The sector rotation matters for procurement decisions. Software vendors under margin pressure will push harder on renewals and upsells. Expect more aggressive bundling and steeper discounts for multi-year commitments.
Some software stocks show resilience: ServiceNow gained 0.7%, Salesforce edged up 0.1% in recent trading. High-growth names like Snowflake and Synopsys still command analyst optimism. Procore Technologies, targeting the $520 billion US public sector spend, projects 11.5% annual revenue growth.
The real question for enterprise tech leaders: are you cutting legacy SaaS to fund AI experiments, or are you waiting to see which AI bets actually deliver ROI? Your vendors are watching those decisions closely. So are their investors.
History suggests market panic creates negotiating leverage. The vendors who survive this rotation will be the ones solving real problems, not just riding the subscription wave.