Wall Street spent 2024 worshiping artificial intelligence. In 2026, reality has set in.
The S&P 500 is still steady, but software stocks have broken away to the downside in a move that feels less like routine rotation and more like genuine panic — the kind of selloff that usually creates bargains, not last rites.
Software P/E Compression
According to Liz Thomas, Head of Investment Strategy at SoFi Technologies Inc (NASDAQ:SOFI), software's forward 12-month P/E has collapsed from 33.1x to 23.2x — a 30% contraction that pushes valuations back toward 2022 and Covid lows.
In other words, Wall Street isn't trimming exuberance; it is pricing risk as if growth has disappeared altogether. The irony: the sector is spending more on AI than ever.
Software Stocks With Panic (Covid)-Level 52-Week Drawdowns
Five household names now sit in rare drawdown territory that resembles Covid-era stress rather than a normal tech pullback.
- Salesforce Inc (NYSE:CRM) (–44%) is being punished for fears that AI agents will replace sales seats, even as its Agentforce platform is growing 330% YoY.
- Oracle Corp (NYSE:ORCL) (–56%) faces capex and OpenAI angst despite a $523 billion backlog of future revenue.
- Netflix Inc (NASDAQ:NFLX) (–40%) carries 2022 vibes even though ads and gaming have made the business stronger.
- Adobe Inc (NASDAQ:ADBE) (–27%) has lagged the AI rally, yet Firefly is now embedded across professional workflows.
- Microsoft Corp (NASDAQ:MSFT) (–26%) is down for building too fast — a capacity problem, not a demand problem.
Panic Vs. Fundamentals
What ties these moves together is sentiment, not substance. The market is extrapolating worst-case scenarios across software just as the industry's AI foundations are being laid. That creates a classic gap between price and reality.
Investor takeaway: When multiples compress this far and fear dominates this loudly, the real risk isn't buying too early — it's being late when the rebound arrives.
Image: Shutterstock
