NEW YORK — A fast-moving wave of artificial intelligence anxiety has punished software stocks in recent sessions, but Wall Street strategists at JPMorgan Chase & Co. and Morgan Stanley say the selloff is starting to look like an opportunity rather than a verdict, Feb. 11, 2026.
The slide intensified after new “agent” capabilities from AI developers fueled worries that autonomous tools could chip away at subscription revenue for everything from productivity suites to industry-specific platforms — a fear that is now being weighed against resilient fundamentals and suddenly cheaper valuations in software stocks.
What’s behind the selloff in software stocks
The market’s latest bout of “AI disruption” fear has been unusually blunt: Investors sold software stocks broadly, often without distinguishing between firms most exposed to commoditization and those with sticky enterprise contracts, proprietary data or mission-critical workflows.
As Reuters reported in its look at the global rout, the S&P 500 software and services index fell sharply over multiple sessions, erasing hundreds of billions in market value since late January and sliding deeper below its prior peak as investors debated whether AI tools represent incremental competition or an existential shift for parts of the industry.
In practical terms, the concern is that AI “coworkers” — systems that can draft, summarize, code, analyze documents and execute multi-step tasks — could reduce the number of paid software seats needed, pressure renewal pricing or compress the margins of companies built on bundling many point solutions into a larger suite.
Still, the selloff’s scope matters: A broad de-rating can create collateral damage in software stocks whose products are embedded in security, compliance, infrastructure monitoring, IT service management and other areas where switching costs and risk tolerance remain high.
JPMorgan and Morgan Stanley see a rebound for software stocks
Strategists at JPMorgan and Morgan Stanley are essentially making the same argument from different angles: The market may be extrapolating a long-term technology shift into a near-term earnings collapse.
In a note highlighted in a Reuters report on the banks’ rebound call, JPMorgan strategists led by Dubravko Lakos-Bujas argued the market has moved too far, too fast. They wrote:
“THE MARKET IS PRICING IN WORST-CASE AI DISRUPTION SCENARIOS THAT ARE UNLIKELY TO MATERIALIZE OVER THE NEXT THREE TO SIX MONTHS.”
JPMorgan’s takeaway: If the market has flushed positioning and punished high-quality names along with the rest, then a tactical rebound in software stocks becomes more plausible — especially in businesses that can use AI to enhance products, improve workflows and defend pricing.
The strategists pointed to a “basket” of higher-quality, AI-resilient software stocks that included Microsoft, Palo Alto Networks, ServiceNow, CrowdStrike and Datadog, according to Reuters.
Morgan Stanley also described the disconnect as more about mood than math. In the same Reuters report, research head Katy Huberty wrote:
“WE BELIEVE THE DISLOCATION IN U.S. SOFTWARE VALUATIONS IS SENTIMENT-DRIVEN, NOT FUNDAMENTAL.”
Her team cited drivers such as revenue expectations, earnings revisions and the potential benefit large technology platforms can see from a weaker dollar — factors that can support higher-quality software stocks even while investors debate the competitive impact of AI.
Credit-market spillover: why lenders are tracking software stocks
The pain in software stocks isn’t confined to equity portfolios. Morgan Stanley warned that the same AI disruption narrative is starting to bleed into corporate credit — a key issue because many software companies (and sponsor-backed vendors) rely on refinancing cycles and steady cash flow.
In its Reuters-covered note on credit risk, Morgan Stanley said software accounts for about 16% (roughly $235 billion) of the $1.5 trillion U.S. loan market, with a heavy concentration in lower-rated debt and a more “front-loaded” maturity wall than the broader market.
Even so, the bank tempered near-term panic, adding:
“WE EXPECT CONTINUED PRICE VOLATILITY IN LOANS, BUT A NEAR-TERM SPIKE IN DEFAULTS IS UNLIKELY.”
That distinction matters for investors trying to handicap whether the drawdown in software stocks is primarily a valuation reset — or a precursor to real balance-sheet stress.
Retail investors keep buying software stocks
While some institutional investors stepped back, retail traders moved in the other direction, treating the decline in software stocks as a dip-buying moment rather than a reason to exit.
Reuters reported that retail inflows hit a record in BlackRock’s iShares Expanded Tech-Software Sector ETF as of a one-month rolling period, citing Vanda Research data. The same report noted the sector’s sharp market-value drawdown through late January and early February, underscoring how quickly sentiment — and flows — can swing around software stocks.
For the market, that mix of institutional caution and retail demand can amplify volatility. It can also help explain why software stocks can rebound sharply once selling pressure eases, even if the underlying AI debate remains unresolved.
Why this software stocks panic feels familiar
For investors who have lived through multiple software cycles, the current AI-driven shock rhymes with earlier episodes — even if the catalyst is new.
In 2022, a rate-driven valuation reset hammered high-growth SaaS, compressing multiples and forcing a rethink of what investors would pay for recurring revenue. In a widely cited recap, Meritech Capital’s “2022 SaaS Crash” analysis documented how dramatically public SaaS valuation multiples and market caps fell from the 2021 peak.
Then, as the narrative flipped, enthusiasm returned. In mid-2023, broader “AI boom” optimism helped lift parts of the tech complex again, including software stocks positioned as beneficiaries of enterprise AI spending. The Guardian captured that shift in sentiment as investors began treating AI as a tailwind for software, chips and the broader tech ecosystem.
By late 2024, the conversation started moving from chatbots to autonomous “agents” — systems designed to plan and execute tasks with less human prompting. A UC Berkeley Sutardja Center piece on agentic AI outlined both the promise and the risks of that approach — a debate that now sits at the center of why software stocks are being repriced.
What’s different in 2026 is that the market is attempting to price competitive disruption in real time, before there is broad evidence of revenue collapse across the sector. That gap between feared disruption and realized disruption is exactly where JPMorgan and Morgan Stanley see potential upside in software stocks — at least for higher-quality names.
What to watch next for software stocks
The rebound case for software stocks doesn’t require the AI fears to disappear; it requires the market to calibrate the timing and magnitude of disruption more realistically. In the near term, investors will be watching:
Earnings and guidance: whether customers are reducing seat counts, delaying renewals or demanding steep price concessions.
Product strategy: which companies can embed AI into core workflows and defend pricing with measurable ROI.
Credit conditions: whether loan-market volatility tightens financing for sponsor-backed software firms.
Positioning and flows: whether institutional money returns to software stocks or stays rotated into other areas of the market.
For now, the message from two major Wall Street research shops is clear: The AI narrative may be rewriting the long-term map for software, but the short-term trade in software stocks has already priced in a lot of damage.
