What’s happening
• Around $1 trillion wiped from software stocks
• Adobe, Salesforce, and Palantir down 25–30% in 2026
• Shopify −29%, HubSpot −39%
• Selling accelerating despite strong earnings
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What’s actually going on
This is not an earnings issue. It is a structural shift.
• AI is compressing the value of traditional software
• Core functions are being automated or replaced
• Heavy investment in AI infrastructure, with revenue lagging behind
• Rising interest rates adding pressure to high-valuation tech
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Why markets are turning
There is a growing gap between expectation and reality.
• Limited real-world productivity gains so far
• Valuations already priced in major AI upside
• Big tech increasing spending without guaranteed returns
• Rate outlook shifting from cuts to potential hikes
Capital is rotating out of growth tech and into energy and value.
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Knock-on effects
The impact extends beyond the tech sector.
• Pension funds and retirement portfolios heavily exposed
• Venture capital activity slowing
• Funding conditions tightening across startups
Continued weakness in major tech names could weigh on the broader market.
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Bigger picture
Valuations remain elevated, with comparisons to the dot-com era.
• AI will likely enhance software long term
• Short-term uncertainty around execution and returns
The companies that adapt fastest will lead. Others risk being left behind.
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What to watch
• Upcoming earnings from Microsoft and Salesforce
• Evidence of AI translating into real revenue
• Market reaction to continued high levels of spending
The next phase will determine whether this is a correction or a deeper repricing.
