Lead: Major software names from Microsoft to Oracle and Salesforce have lost substantial value since late 2025 amid renewed investor anxiety about artificial intelligence. As of Feb. 19, 2026 Microsoft traded roughly 28% below its all-time high from last fall, Oracle about 55% below its late-2025 peak and Salesforce had dropped about 27% year-to-date. The S&P Software & Services index is down nearly 20% in 2026 while the Nasdaq is down about 2.4% YTD, feeding debate over whether AI-driven disruption or overstretched AI spending is behind the selloff. Investors and analysts are sharply divided on whether the slump is a buying opportunity or a signal of structural change.
Key takeaways
- Microsoft was about 28% below its all-time high as of Feb. 19, 2026; Oracle sat roughly 55% below its record late-2025 level and Salesforce had declined about 27% in 2026.
- The S&P Software & Services index is down nearly 20% in 2026; the Nasdaq is down 2.4% year to date, showing the selloff is concentrated in software stocks.
- Analysts offer two competing narratives: AI will either commoditize software products or current AI investments will fail to deliver expected returns.
- “Vibe coding” tools such as Anthropic’s Claude Code (January 2026 attention) have heightened investor concern by enabling non-coders to assemble applications.
- Long-term historical context: the S&P software index roughly quadrupled between early 2016 and late 2021, fueling high valuations before the AI-era re-rating.
- Some investors see lower prices as an opportunity to buy large-cap software names at reduced earnings multiples; others warn past returns may not repeat over the next decade.
Background
Software companies enjoyed outsized investor enthusiasm in the years leading to the AI era. From early 2016 to late 2021 the S&P software index climbed from under 4,000 to above 16,000, reflecting the shift to cloud computing, subscription models and rapidly expanding TAMs. That run set high expectations for steady revenue growth and margin expansion, and many software firms were priced on a premium multiple for future growth.
The modern AI discussion accelerated after November 2022, when the public launch of ChatGPT crystallized expectations for productivity gains and new product categories. Initially Wall Street treated AI as a rising tide that would lift software vendors by improving developer productivity and enabling new services. Over time, however, the story bifurcated: some market participants began to see winner-take-all dynamics and platform consolidation, while others worried that AI tools could replace key aspects of software development and distribution.
Main event
The selloff gathered force in late 2025 and intensified in early 2026 as traders reassessed valuations. In January, renewed focus on Anthropic’s Claude Code — a tool reported to let non-programmers assemble applications via natural language prompts, a practice dubbed “vibe coding” — amplified worries that traditional packaged software could be disrupted. Market action pushed many large-cap software names sharply lower even when fundamentals for individual firms remained mixed.
Market commentators offered different diagnoses. Some traders argued the decline reflects a rational re-pricing after an exuberant AI-driven run; others said concerns have become too indiscriminate, hitting solid businesses with durable franchises. For example, Microsoft remains widely followed and many analysts do not see an existential threat from AI, yet its share price was trading about 28% below its peak from last fall, creating divergent views on near-term upside.
Investor behavior has been shaped by both macro and product-specific forces. Rising interest rates, shifting sector leadership and headline-driven risk aversion have combined with technological anxieties to pressure valuations. The outcome is a market that is weighing the scale and timing of AI’s benefits against the pace at which AI could substitute for or compress the addressable market for legacy software offerings.
Analysis & implications
The immediate implication of the selloff is lower entry points for long-term investors but higher uncertainty about forward returns. Falling prices have reduced valuation multiples on many large-cap names, which some see as a chance to buy quality assets at a discount. However, lower multiples do not guarantee previous multi-year returns will recur if structural demand for certain packaged software weakens.
Second, the two prevailing narratives — AI as disruptive vs. AI as overstated spending — imply different portfolios. If AI will commoditize broad swaths of software, niche providers and bespoke enterprise systems could face margin pressure and consolidation. If AI investments simply failed to deliver profitable growth, capital expenditure misallocation could lead to weaker margins but potentially preserve the core value of established platforms.
Third, the “vibe coding” dynamic raises questions about who captures future software value. Tools that let non-developers assemble workflows could shrink demand for off-the-shelf applications in some categories while creating new markets for AI-augmented platforms, integration services and managed offerings. Regulators, customers and incumbents’ strategic responses will shape winners and losers over the next several years.
Comparison & data
| Security / Index | Reference peak | Decline (approx.) |
|---|---|---|
| Microsoft | All-time high, fall 2025 | −28% |
| Oracle | Record high, late 2025 | −55% |
| Salesforce | Start of 2026 | −27% YTD |
| S&P Software & Services index | Start of 2026 | −~20% YTD |
| Nasdaq Composite | Start of 2026 | −2.4% YTD |
The table puts the software-sector moves in relief: losses are concentrated in software-focused stocks and indexes, while the broader Nasdaq has fallen far less. Historical context matters: the software index’s prior fourfold gain from 2016–2021 raised expectations that are now being reexamined.
Reactions & quotes
Market analysts and industry figures have framed the selloff in starkly different ways, reflecting the split diagnosis in markets and among investors.
“We’re seeing a lot of really good businesses out there that are getting hammered, really indiscriminately.”
Jason Moser, The Motley Fool
Jason Moser’s comment reflects a view that market moves have been broad-brush, moving beyond fundamentals to sentiment-driven selling. That perspective underlies the argument by some investors that current prices represent selective buying opportunities for long-term holders.
“These companies were basically masters of the universe.”
Sameer Samana, Wells Fargo Investment Institute
Sameer Samana’s shorthand recalls the sector’s rapid ascent and high-confidence era. It also signals why re-pricing is politically and financially painful: expectations set during the growth phase are being recalibrated as AI reshapes product road maps.
“You’re getting the ability to buy these companies at significantly less earnings multiples than you had six months ago.”
James Cox, Harris Financial Group
James Cox emphasizes the tactical investment case for buying large-cap software names on lower multiples, a view echoed by investors who treat the selloff as a valuation reset rather than structural decline.
Unconfirmed
- Whether tools like Claude Code will displace broad categories of packaged software remains unproven; early demonstrations do not establish widescale substitution for complex enterprise systems.
- The precise timeline for any structural earnings decline in software sectors is unknown; market prices reflect expectations but not certainties.
- Claims that AI spending by software firms will uniformly fail to generate returns are mixed and vary by company, product cycle and execution — outcomes remain to be validated by future results.
Bottom line
The recent slide in software shares reflects both a valuation reset after a multi-year rally and a broader market debate over AI’s impact. For patient investors the selloff presents clearer entry points into established franchises, but lower prices do not erase the need to assess company-specific exposure to AI substitution and execution risk.
Portfolio choices should therefore weigh balance-sheet strength, recurring revenue models and managements’ track records of allocating capital toward profitable growth. In short, buying the dip may make sense for investors who can tolerate sector uncertainty and selectivity; for others, the period ahead will require careful monitoring of product adoption, competitive responses and quarterly evidence of ROI from AI investments.
Sources
- USA TODAY (news report)
- Microsoft Investor Relations (official)
- Oracle Investor Relations (official)
- Salesforce Investor Relations (official)
- Nasdaq Market Activity (market data)
- S&P Dow Jones Indices / S&P Global (index provider)