From India to the US,technology stocksfelt the heat after Anthropic announced new AI plugins. TheNifty IT Indexplunged to a 3-month low following the sharp selloff on US tech stocks on February 3. US tech stocks continue to see lingering pressure even in early trade on February 4.JP Morgan, in a recent report, has highlighted that a “broad, sweeping, mass exodus of Software stocks” was triggered by the perception that rapid AI technological advancement is poised to disrupt the entire enterprise software landscape.
“In our view, generalist money flows responding to the rapidAIproduct rate-of-change dynamic are overwhelming the deeper-thinking fundamental software sector specialists who are slightly more grounded in the principles that create stickiness for Enterprise software businesses,” said JP Morgan.
A broad and intense market sell-off
The software sector across the globe is experiencing a “mass exodus.” The IGV Tech-Software sector ETF is dropping 5% and approaching valuation lows not seen since early 2025.
Managed by BlackRock, the IGV (iShares Expanded Tech-Software Sector ETF) is one of the most popular and liquid funds for the software industry.
This sell-off is notably broad, impacting companies across all market capitalisations. This includes those previously thought to have low AI disruption risk, such as Cloudflare and Snowflake.
Tech sector: Sentiment Vs fundamentals
Analysts at JP Morgan believe that “generalist money flows”are driving “knee-jerk selling” based on the rapid rate of AI technological change. This sentiment-driven selling is reportedly overwhelming fundamental specialists who believe in the long-term stickiness of enterprise software.
The international brokerage house suggests that current investor psychology has become an inverse of the 2021 software euphoria, with valuations reaching 25–30 year lows relative toSemiconductors.
SaaSpocalypse is here
The primary driver for the most recent market volatility is Anthropic’s release of plugins for its “Claude Cowork” product, as per JP Morgan. These plugins allow the AI to evolve from a text-based chatbot into an ‘agent’ capable of executing tasks across a user’s local files and browser. It specifically targets departments like Legal, Sales, Finance, and Data Analysis.
Structural economic headwinds
The software sector is facing an ongoing “Software recession” marked by slow leading indicators and a lack of workforce growth. Furthermore, US payroll growth has slowed to zero, which negatively impacts ‘seat-based’ subscription volumes that typically drive revenue for these companies.
AI Budget ‘Crowding Out’
Enterprise software companies face a significant hurdle as AI spending ‘crowds out’ traditional software budgets. This trend leads many companies to pause, digest, or defer traditional software projects as they shift their focus and capital toward the rapidly evolving AI landscape.
