Have software stocks reached an extreme washout yet?
Have software stocks reached an extreme washout yet?
Brian SozziMon, April 27, 2026 at 2:19 PM UTC
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Software stocks have been obliterated this year as fears of AI disruption call into question once-foolproof business models.
The sell-off has touched everyone from enterprise software behemoth Salesforce (CRM) to midcap enterprise play DocuSign (DOCU). Yet even in the face of sizable pullbacks, the selling hasn't peaked, RBC Capital Markets strategist Lori Calvasina argued in a new note on Monday.
The call on software stocks: Calvasina contended that Wall Street hasn't moved fast enough to mark down its earnings estimates on software companies. That could be the next shoe to drop for the sector, leading to another round of selling as valuations are further reset.
"One thing we've been pointing out in recent client meetings is that Software revisions have stabilized around the 50% mark, but haven't yet entered negative revisions territory," Calvasina said. "While valuations for this industry are close to past lows, we are not seeing the same thing on software EPS revisions and normally like to see extreme negative EPS revisions and depressed valuations before considering an industry to be washed out."
The software stock backdrop: The software sector has undergone a brutal valuation reset this year as investors pivot from viewing AI as a tailwind to a major disruptor. This "SaaSpocalypse" has been driven by three primary concerns:
The democratization of development, where AI enables businesses to build custom in-house tools.
Seat compression as AI agents replace human workers and reduce the need for per-user licenses.
Growth lag, where software companies struggle to monetize AI while infrastructure providers like AI chipmaker Nvidia (NVDA) reap the rewards.
Among the biggest affected, ServiceNow (NOW) has plummeted 44.6% year to date. Salesforce has dropped over 40% from its highs due to anxieties over its seat-based model. Adobe (ADBE) stock fell nearly 20% following the recent announcement of longtime CEO Shantanu Narayen's departure and persistent fears that generative AI tools could cannibalize its creative suite dominance
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Bottom line: ServiceNow execs blew a lot of smoke in investors' faces last week when it reported earnings, trying to make the case that the business is doing great and is a key player in AI. Yet, the stock got crushed and is now down 52% in the past 12 months!
"ServiceNow posted a more mixed start to 2026, with a weaker organic beat plus raise cadence and noise from recent acquisitions, compounded by deal slippage from the Middle East," Citi analyst Tyler Radke said.
"While AI momentum continued in Q1 with Servicenow raising 2026 AI target to $1.5 billion from $1 billion plus and robust quarter over quarter and year over year growth in large AI deals, it does not appear to be showing up in underlying growth yet," he added.
Proceed with caution on software stocks despite most of them having been pummeled. The market is looking through the usual hype from software execs. Pros expect numbers to worsen in the coming quarters as AI agents and model builders like Anthropic (ANTH.PVT) chip away at legacy business models.
Brian Sozzi is Yahoo Finance's Executive Editor and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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