Software stocks plunge again! Amazon’s new tool triggers chain reaction; software ETF plummets 4%, annual decline widens to 23%.

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The software sector suffered a major blow on Tuesday, as multiple negative factors combined to reignite market concerns about artificial intelligence disrupting the traditional software business model.

On March 24, The Information reported that Amazon's cloud computing division AWS is developing AI agents to automate roles such as sales and business development—precisely the areas affected by Amazon's recent large-scale layoffs.

Meanwhile, AI startup Anthropic released the latest upgraded version of Claude on Monday night. The new version can take over users’ computers to perform office tasks like browsing the web and filling out spreadsheets, further intensifying market panic about AI replacing human labor.

Software stocks suffered a collective crash on Tuesday. The iShares Tech Software Sector ETF fell more than 4% on the day—its biggest single-day drop in a month. The year-to-date decline widened to 23%, potentially marking the worst quarterly performance since 2008. In contrast, semiconductor indices rose 1.2%.

(Blue line: Software ETF down more than 4% on the day; Orange line: Philadelphia Semiconductor Index up 1.2%)

Currently, the forward P/E ratio for the tech software sector has fallen below the overall S&P 500 level. Some market participants bluntly state:

The software sector is undergoing massive capital destruction.

For investors, it’s still difficult to determine when the sector’s valuation can recover before AI’s impact on enterprise software subscription models shifts from narrative to earnings reality.

AWS Develops AI Agents, Anthropic Releases Desktop Agent—Aiming at White Collar Job Automation

According to The Information citing sources, the AI agent AWS is developing can handle part of the workload of thousands of technical specialists in fields such as cybersecurity and server networks.

The report notes that the agent is intended to automate functions previously performed by sales and business development employees—positions already hit by Amazon’s recent wave of layoffs.

The report further reinforced market concerns about AI “internal substitution.” Tech giants are not only cutting jobs, but are also filling those functional gaps with in-house AI tools. For traditional software subscription models based on user count, this trend poses a direct threat.

Previously, on Monday night, Anthropic made two important updates to Claude.

First, the new version of Claude Cowork desktop agent has stronger Mac control capabilities and can even be operated remotely via the Claude mobile app.

Second, according to a study by the Anthropic Economic Index, Claude’s use cases are expanding rapidly from programming and development to office administration, finance, and management tasks.

The report also notes that experienced users with “AI fluency” consistently achieve better results than novices, leading to productivity and income stratification within the same roles. This finding is seen as an early signal of AI replacing ordinary white-collar jobs.

It’s worth noting that the report points out the desktop agent is still in early research stages, accompanied by many risks such as data leaks, accidental deletions, and new security vulnerabilities.

Multiple Pressures Combine—Sector Weakness Not Due to a Single Factor

Mizuho’s Executive Director of Equity Trading, Daniel O’Regan, stated that Tuesday’s software stock weakness was the result of several minor factors combined. Beyond the AWS agent and Claude updates, he listed the following points:

First, the 10-year US Treasury yield reached an 8-month high this week, putting pressure on high-valuation sectors.

Second, Andreessen Horowitz general partner David George wrote that software companies now have only two choices: either deliver more than 10 percentage points of annual revenue growth in the next 12–18 months by developing AI-native products, or rebuild operating margins (including equity incentives) to over 40% or even 50%.

Third, a research firm issued a negative report on global team collaboration software developer Atlassian, saying its partners’ results were slightly below plan for the quarter and that growth is expected to slow down in 2026. Atlassian closed down over 8%.

Fourth, among software ETF constituents, Circle’s stock price plummeted nearly 20% in one day due to concerns about stablecoin legislation. Although its weighting is only 0.28% of the ETF, Daniel O’Regan argues Circle is essentially a fintech company issuing stablecoins and should not have been included in the ETF at all.

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