Markets
Doll Baby Falling Down The Stairs
(Getty Images)

Claude Cowork the newest fuel for an AI-driven de-rating of software stocks

Software stocks are in the wilderness: fears of disintermediation by AI mean it’s difficult to think of them as growth stocks going forward, but they’re not necessarily cheap enough to be considered value stocks, either.

Software companies started off 2026 with a record underperformance of chip stocks.

Things haven’t gotten any better since.

The iShares Expanded Tech Software ETF is off more than 4% year to date, with most of the stocks in the fund showing a discouraging trend: just 31% are trading above their 200-day moving average.

The launch of Claude Cowork by Anthropic, which was mostly built using its Claude Code tool, has reignited traders’ desire to get out of software stocks for fear that they’ll be disintermediated by AI tools and agents.

A smattering of formerly high-flying, highly valued software companies have suffered significant valuation compression to converge around enterprise value-to-estimated sales ratios of less than 5.

(Many thanks to modestproposal1, a member of my finance twitter Mount Rushmore, for bringing this to our attention.)

To modify Anna Karenina, each member of this software family is unhappy in a similar way, despite being very different when it comes to top-line growth, margins, market caps, or the customer needs their businesses address. Nevertheless, they’ve all arrived at essentially the same valuation destination by way of a unifying cause.

A growth stock that’s sold off is not a value stock. It’s a stock left to wander the wilderness.

The business prospects of established software firms have taken a hit because of the ease with which AI agents are able to develop software and handle the tasks and processes that served as the core value proposition provided by these companies. Or more simply: if the marginal corporate dollar goes directly to AI, rather than software or labor, it makes sense that investment dollars would follow, too.

“First, the arrival of truly capable AI agents is no longer a 2027 or 2028 story, it’s happening now. The timeline has collapsed. Second, the classic ‘build versus buy’ calculation that has governed enterprise software decisions for decades has been fundamentally altered,” Jordi Visser of 22V Research wrote in a note from January 7. “When a domain expert can build sophisticated technical systems in hours rather than months, the economics of custom development versus off-the-shelf solutions shift dramatically.”

For investors who primarily hold broad market ETFs, this state of affairs is more than a bit annoying: many of the seemingly disrupted are multibillion-dollar market caps in popular benchmark indexes, while the disruptor, in the case of Anthropic, isn’t publicly traded.

Typically, software firms trade at higher valuations than chip companies because they’re asset-light, historically higher-margin, and tend to generate high amounts of reliably recurring revenues, whereas semiconductor companies are subject to the whims of volatile manufacturing cycles. But the sell-off and concurrent de-rating of software stocks leaves the parent index for the iShares Expanded Tech Software ETF near a similar valuation as the Philadelphia Semiconductor Index. That’s a signal about the perceived strength of this trend: investors are increasingly willing to pay up for the products that lay the foundation for the potential disintermediation of software companies, rather than these sticky revenue generators.

(Note: This software fund also counts both AI software beneficiaries like Palantir, D-Wave Quantum, and some crypto treasury companies as some of its most richly valued members, most of which I would struggle to call software stocks.)

While valuations for many software companies are cheap relative to their history, they still trade at a significant premium to the S&P 500 on most valuation metrics (including EV to sales). Therein lies the rub: a growth stock that’s sold off is not a value stock. It’s a stock left to wander the wilderness.

“For those trying to buy software because they are cheap and fade semiconductors, I think people are missing what these engineers have said this year,” Visser added. “The competitive moats around enterprise software businesses begin to look dangerously shallow in this world.”

The bull case for software? Well, for starters: this bear case, and the fact that everyone’s seemingly betting on these negative trends to persist. Positioning data from Morgan Stanley suggests that institutions hate software stocks at the moment.

Even if AI eats software, it’ll have a lot of chewing and digesting to do along the way, since software’s already eaten the world first.

More Markets

See all Markets
markets

SpaceX gets a wave of bullish ratings from Wall Street analysts

SpaceX received more than a dozen positive analyst calls on Tuesday — including from major Wall Street banks — as they initiate coverage on Elon Musk’s space and AI company.

SpaceX went public on June 12 at a $2.2 trillion valuation, the largest debut in history. While the company hasn’t yet posted a profit, it seems to have convinced Wall Street that it will get there and grow its valuation on the way.

Of the at least 17 analysts that gave a rating on Tuesday, all but one gave it a “buy” or “outperform” rating. MoffettNathanson was "neutral."

The ratings come as SpaceX joined the Nasdaq 100 index, a benchmark tech-heavy basket of companies that underpins millions of portfolios. The inclusion adds built-in demand for the stock from index funds and ETFs.

Still, SpaceX fell more than 5% on Tuesday amid a broader sell-off, and is currently effectively flat from its opening price of $150 a share.

markets

Nike sinks to lowest level since 2014 after warning of “challenged” sales environment in Q4 report

Did Nike do it?

Investors had a mixed reaction after the global sports apparel company reported its fourth quarter earnings on Tuesday after the bell. Shares initially rose 5% as Nike beat out Wall Street expectations amid a hefty tariff refund bonus. However, the stock then sank to its lowest level since August 2014 in postmarket trading.

Here are the Q4 numbers:

  • Revenue of $11.0 billion (estimate: $10.8 billion).

  • Adjusted earnings per share of $0.20 (estimate: $0.12).

Ahead of this report, Nike warned that results would be flattered by a one-time tariff refund (now estimated at roughly $0.52 per share for the bottom line). That gave the company an extra cushion in snapping its streak of seven quarters of year-over-year profit declines.

Over the past year, the company had been punished by tariffs on imported goods, stagnant consumer spending, and increasing competition from other footwear brands like New Balance, Adidas, and Hoka.

Outgoing CFO Matthew Friend deemed it an “increasingly challenging operating environment, where sell-through remains challenged.”

Latest Stories

Sherwood Media, LLC and Chartr Limited produce fresh and unique perspectives on topical financial news and are fully owned subsidiaries of Robinhood Markets, Inc., and any views expressed here do not necessarily reflect the views of any other Robinhood affiliate, including Robinhood Markets, Inc., Robinhood Financial LLC, Robinhood Securities, LLC, Robinhood Crypto, LLC, Robinhood Money, LLC, Robinhood U.K. Ltd, Robinhood Derivatives, LLC, Robinhood Gold, LLC, Robinhood Asset Management, LLC, Robinhood Credit, Inc., Robinhood Ventures DE, LLC and, where applicable, its managed investment vehicles.