Pressure was not limited to U.S. markets. In Europe, the Stoxx Europe Software and Computer Services index sank more than 5% on Tuesday, led by steep declines in companies such as RELX, which lost over 14%, and Capgemini, which closed down more than 9%. Losses continued into Wednesday, with the index falling another 1.9% in early trading. Shares of TomTom dropped more than 12%, while Trustpilot and Atoss both fell sharply.
Asian markets showed similar stress. Japanese software and IT firms led regional declines during Wednesday’s session, with TIS plunging nearly 16% and Trend Micro and NS Solutions each down more than 7%. In India, the Nifty IT index slid 5.8%, erasing gains from the previous day, as Tata Consultancy Services, Infosys, and HCL all posted significant losses.
Investors appear to be reassessing how AI will affect the economics of software companies that have long been valued for predictable subscription revenue and high renewal rates. Rather than simply boosting productivity, AI tools are increasingly viewed as a source of competitive pressure that could automate workflows, compress pricing, and lower barriers to entry for new competitors. That shift has led markets to cut valuation multiples across the sector.
Ed Yardeni, president of Yardeni Research, said the latest wave of selling followed new AI product announcements that rattled investor confidence. “AI has turned technology into an even more competitive sport,” Yardeni said, pointing specifically to recent tools rolled out by Anthropic for its Cowork product. While it remains unclear how widely adopted or impactful those tools will be, he said investors reacted by reassessing the earnings durability of software companies.
Some analysts argue the market is now drawing sharper distinctions within the software sector. Vey-Sern Ling, a senior equity advisor at UBP, said investors are likely to favor areas where AI poses less risk of disruption. Infrastructure software and cybersecurity companies, he noted, may be better positioned, as they often retain pricing power and can potentially use AI to upsell existing customers rather than undercut their own products.
For now, the selloff reflects skepticism rather than a definitive judgment on AI’s long-term value. Investors appear less willing to assume that AI spending will translate quickly into revenue growth, particularly as implementation costs and competitive pressures become more visible. Until software companies can clearly demonstrate that AI is driving sustainable growth — rather than accelerating commoditization — market volatility in the sector is likely to persist.
This analysis is based on reporting from CNBC.
Image courtesy of Unsplash.
This article was generated with AI assistance and reviewed for accuracy and quality.
