Software Stocks Plunge as AI Disruption Fears Intensify on Wall Street

New York, February 4, 2026 — U.S. equity markets closed lower on Tuesday, February 3, with the software sector bearing the brunt of a sharp selloff driven by mounting investor concerns over artificial intelligence's potential to disrupt traditional software business models.

The tech-heavy Nasdaq Composite fell 1.4%, closing at 23,255.19, while the broader S&P 500 declined 0.8% to 6,917.81. The Dow Jones Industrial Average posted a milder loss of 0.3%, ending at 49,240.99 after briefly touching a record high earlier in the session.

The selloff accelerated following the release of a new AI-powered legal automation tool by Anthropic, which demonstrated advanced capabilities in legal research, drafting, and analysis using its Claude AI model. Investors interpreted the announcement as a stark warning of how generative AI could encroach on — or even replace — specialized enterprise software in areas like legal services, tax preparation, customer relationship management, and data analytics.

"The market is reacting to the fear that AI is moving from hype to real competitive threat for many SaaS companies," said Art Hogan, chief market strategist at B. Riley Wealth. "We're seeing indiscriminate selling across software names, even those not directly in the crosshairs."

Several prominent software companies suffered steep declines:

  • Intuit (INTU), maker of TurboTax and QuickBooks, plunged nearly 11%, pushing its year-to-date losses to more than 34%.

  • Salesforce (CRM) dropped about 7–8%, bringing its 2026 decline to around 26%.

  • ServiceNow (NOW) fell nearly 7%, extending year-to-date losses to 28%.

  • Adobe (ADBE), Datadog (DDOG), and Atlassian (TEAM) each lost around 6–8%.

  • Legal-focused firms were hit hardest: Thomson Reuters (TRI) tumbled nearly 16–18% in its largest single-day drop on record, while LegalZoom (LZ) sank up to 20%.

The rout extended beyond U.S. borders. European software and data analytics stocks, including RELX and Wolters Kluwer, fell sharply, with some posting double-digit percentage declines on Tuesday before paring losses Wednesday. The selloff continued into Asian markets on February 4.

Analysts noted that software stocks have been under pressure for weeks, with the sector experiencing one of its worst monthly performances in recent memory during January. The latest wave of selling reflects a broader shift in investor sentiment: away from high-valuation "AI-adjacent" software firms toward more economically sensitive sectors.

"Trading has been very much 'get me out' style," one market observer told Bloomberg, highlighting panic-driven liquidation across the software cluster.

Despite the broad-based pressure on tech, some stocks bucked the trend. Palantir Technologies (PLTR) rose sharply after reporting stronger-than-expected earnings and guidance the previous day.Meanwhile, safe-haven assets rallied: gold reclaimed the $5,000-per-ounce level, and silver also rebounded amid the risk-off mood.

Market participants now await key earnings reports later this week from Alphabet and Amazon, which could provide further clues about corporate AI spending and its impact on legacy software demand.

The software selloff underscores a growing debate on Wall Street: while AI continues to drive massive infrastructure investment (benefiting chipmakers and cloud providers), the application layer — traditional enterprise software — faces an uncertain future as powerful general-purpose AI tools proliferate.

Investors appear to be recalibrating expectations, rotating capital toward perceived lower-disruption areas even as the broader bull market remains intact. Whether Tuesday's move marks a short-term panic or the start of a deeper re-rating for software stocks will likely depend on upcoming corporate commentary and AI adoption trends.