The software sector is having a moment, and not the good kind. iShares Expanded Tech-Software Sector ETF (NYSEARCA:IGV) has shed nearly 23% year-to-date, with a 16% drop in just the past month. The carnage was indiscriminate.
The sell-off hit everything wearing a software badge. Gaming. Legal services. Brokerages. Trucking. Cybersecurity. The thesis driving it: the same AI technology that was supposed to save software companies is now what is threatening to kill them.
The Numbers Tell the Story
Compare IGV’s carnage to the broader tech benchmark. Invesco QQQ Trust (NASDAQ:QQQ) is essentially flat year-to-date, down just over 1%. Software didn’t just underperform tech broadly. It got destroyed while everything else held up.
Look at the individual names inside IGV. Salesforce (NYSE:CRM) is down 26% year-to-date despite posting a 24.9% EPS beat last quarter and $800 million in Agentforce ARR growing 169% year-over-year. CrowdStrike (NASDAQ:CRWD) is off about 21% year-to-date despite reporting record net new ARR of $265 million, up 73% year-over-year. A Reddit post captured the absurdity perfectly: “CRWD and NET down almost 10% today because… Claude has a new code review skill.”
Unity Software (NYSE:U) is the most extreme case. Down nearly 59% year-to-date, the stock cratered after Alphabet demonstrated real-time generative game tools. Yet Unity just beat Q4 earnings massively, with adjusted EPS of $0.24 against a consensus estimate of -$0.22.
The Real Threat: AI Gets Connected
Here’s what’s actually accelerating the damage. AI isn’t just getting smarter. It’s getting plugged directly into enterprise systems through open integrations, with no standards governing what it can access or what it can do. The agents making PowerPoints are now inside enterprise software, doing the work those companies used to charge for.
ServiceNow CEO Bill McDermott addressed this head-on: “The speculation of AI will eat software companies is out there. Let’s clear it up with the facts. Enterprise AI will be the largest driver of return on the multitrillion-dollar super cycle of investment in AI infrastructure.”
He has a point. ServiceNow (NYSE:NOW) reported Q3 revenue up 22% year-over-year yet the stock is down 29% year-to-date. The market isn’t punishing bad results. It’s repricing an entire category because nobody knows how to value something moving this fast with no regulatory framework around it.
That’s the real story inside IGV’s collapse. The fundamentals haven’t broken. The valuation framework has. Until the market figures out whether AI agents are software’s killer or its rocket fuel, expect the indiscriminate selling to continue.
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