Software stocks enter bear market on AI disruption fear with ServiceNow
ServiceNow Inc. signage during the Nvidia GPU Technology Conference in San Jose, California, on March 20, 2025.
David Paul Morris | Bloomberg | Getty Images
Software stocks on Thursday slid deeper into an ongoing intense sell-off this year as investors recoiled from the sector on growing fears that artificial intelligence could upend many firms’ business models.
The iShares Expanded Tech-Software Sector ETF (IGV) dropped about 5% in morning trading, on pace for its biggest one-day decline since last April during the tariff-triggered downturn. The fund is now down about 21% from its recent high, pushing the software industry into bear-market territory and underscoring how quickly sentiment has turned against one of Wall Street’s former favorite industries.
Month to date, IGV is down almost 14%, on pace for worst month since October 2008 when the fund fell 23%.
The iShares Expanded Tech-Software Sector ETF over one year
ServiceNow 5 days
“Good, but not good enough,” Morgan Stanley analysts said in a note of ServiceNow report. “In an environment of heightened investor skepticism on incumbent application vendors, stable growth, in line with expectations, likely falls short of shifting the narrative.”
The pressure has deepened across the sector as investors question whether AI competitors and automation tools could erode demand for traditional software licenses and workflows. Valuations once justified by steady subscription growth are being recast as investors assess the possibility that AI could permanently shrink long-term revenue potential.
The selloff spilled into megacap tech as well. Microsoft slid about 10% after reporting a slowdown in cloud growth for the fiscal second quarter, on track for its steepest one-day drop since March 2020. The software giant also issued softer-than-expected guidance on operating margin for the fiscal third quarter.
Investor unease has been amplified by the rapid pace of AI development itself. Anthropic released Claude Opus 4.5 late last year, its third major model launch in just two months. The company said the model excels at coding, operating computers and assisting with complex enterprise tasks, with ideal users including professional software developers and knowledge workers such as financial analysts, consultants and accountants.
ServiceNow Chief Executive Officer Bill McDermott sought to counter investor fears on the company’s earnings call Thursday, saying concerns that AI will displace software vendors are misplaced.
“The real payoff comes when trillions of tokens move beyond pilots to be embedded directly into the workflows where business decisions are made,” McDermott said. “ServiceNow is the gateway to this shift, serving as the semantic layer that makes AI ubiquitous in the enterprise.”
He added that because AI systems are probabilistic, companies still need workflow software to ensure consistent business outcomes.
— With assistance from CNBC’s…
