Wall Street has been skeptical about software stocks in recent times, but a phase of outright panic hit this week. Traders are dumping shares across the sector as fears mount that artificial intelligence (AI) could fundamentally disrupt software-as-a-service (SaaS) business models.
After a broad selloff on Tuesday that led to about a 4% decline in the S&P 500 software and services index and another 0.73% dip on Wednesday, the sector lost about $830 billion in market value since January 28, per Reuters, as quoted on Yahoo Finance.
Anthropic AI Launches Spark Sector-Wide Selloff
The anxiety intensified on Tuesday after AI startup Anthropic unveiled a productivity tool aimed at in-house lawyers. The announcement triggered a sharp selloff in legal software and publishing stocks, per Bloomberg, as quoted on Yahoo Finance.
London Stock Exchange Group Plc, which derives significant revenue from data and analytics, Thomson Reuters Corp., CS Disco Inc. and Legalzoom.com Inc. shares tumbled massively. Fears have been building for months, but the January release of Anthropic’s Claude Cowork tool accelerated concerns about AI-driven disruption.
Software Index Suffers Historic Decline
The S&P North American Software Index has now fallen for three straight weeks, ending January down 15%, marking its steepest monthly decline since October 2008, per the above-mentioned source.
Earnings Season Offers Little Relief
This earnings season has done little to calm nerves. Only 67% of software companies in the S&P 500 have beaten revenue estimates so far, compared with 83% for the broader tech sector, according to Bloomberg data.
Microsoft Corp. MSFT reported solid earnings last week, but slowing cloud growth and rising AI spending unsettled investors. January was the stock’s worst month in more than a decade. The stock is off about 11% over the past one month (as of Feb. 3, 2026).
Oversold Conditions Attract Select Buyers
Some investors see opportunity amid the rout. The Sycomore Sustainable Tech fund, which has outperformed nearly all peers over the past three years, added Microsoft shares during the selloff, betting the company will ultimately emerge as an AI winner.
Microsoft now trades at under 23 times forward earnings, its lowest valuation in roughly three years. Technical indicators also suggest oversold conditions for the software index.
How to Play the Short-Term Tech Rout?
gainst this backdrop, we highlight below a few inverse exchange-traded funds (ETFs) that could perform well amid the ongoing tech rout.
Tradr 1X Short Innovation Daily ETF SARK – Up 4.5% on Feb. 4
The Tradr 1X Short Innovation Daily ETF seeks to provide the daily investment results, before fees and expenses, of the inverse of the daily performance of the ARK Innovation ETF. The fund charges 100 bps in fees.
ProShares Short QQQ PSQ – Up 1.8% on Feb. 4
The underlying NASDAQ-100 Index includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ Stock Market based on market capitalization. It reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. The fund charges 95 bps in fees and yields 4.97% annually.
ProShares UltraShort QQQ QID – Up 3.5% on Feb. 4
The ProShares UltraShort QQQ seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the NASDAQ-100 Index. The fund charges 95 bps in fees and yields 6.27% annually.
Direxion Daily S&P 500 Bear 1X Shares SPDN – Up 0.5% on Feb. 4
The Direxion Daily S&P 500 Bear 1X Shares seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of the S&P 500 Index.The fund charges 47 bps in fees and yields 4.08% annually.
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Microsoft Corporation (MSFT): Free Stock Analysis Report Proshares Short QQQ (PSQ): ETF Research Reports ProShares UltraShort QQQ (QID): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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