The worst way to start the year! US software stocks crashed because Claude Code is too popular.

Claude Code’s explosive popularity has reignited market concerns about the software industry being disrupted by AI, and U.S. software stocks are facing their worst annual start in years. Since the beginning of the year, a basket of SaaS stocks tracked by Morgan Stanley has dropped by 15%, further declining after an 11% decrease in 2025, marking the worst opening performance since 2022. In terms of valuation, software stocks tracked by Morgan Stanley are currently trading at 18 times their expected earnings over the next 12 months—the lowest level on record and much lower than the average of over 55 times in the past decade. Panic spread rapidly after Anthropic launched its new service “Claude Cowork” on January 12. According to a previous report by Wallstreetcn, the latest version of Claude Code—Claude Opus 4.5—has demonstrated astonishing abilities. Some users reported completing complex projects that used to take a year in just one week with this tool. Many users shared on social media about successfully developing their first software despite never having learned programming before. This wave of selling has intensified the divergence in performance between software companies and other sectors within technology. As the Nasdaq 100 index approaches its historical high, companies like ServiceNow Inc. are seeing their share prices fall to multi-year lows. Last week, TurboTax’s parent company Intuit Inc. plunged 16%, marking its largest weekly drop since 2022, while Adobe Inc. and Salesforce Inc. both slipped more than 11%. Despite valuations being highly attractive, Wall Street analysts note that, faced with the disruptive uncertainty brought by AI, many buy-side institutions currently see “no reason to own” software stocks, and there are no catalysts for revaluation in the near term. Claude Code Intensifies Disruptive Panic The trigger for this sell-off was Anthropic’s release of a “research preview” version of the Claude Cowork service. According to the company, this tool can create spreadsheets from screenshots, draft reports from various notes, and is mainly developed quickly using AI. Although the tool hasn’t been fully verified, Jordan Klein, a technology industry expert at Mizuho Securities, pointed out that its demonstrated capabilities align with investors’ worst fears, reinforcing an increasingly bearish stance on software stocks in the market. According to Bloomberg, Bryan Wong, a portfolio manager at Osterweis Capital Management, said, “Anthropic’s announcement highlights the difficulty of assessing future growth prospects. The pace of change is unprecedented, pushing future uncertainty to its peak.” In a report to clients on January 14, Klein stated bluntly that many buy-side investors believe that, no matter how cheap the share prices are or how much they have fallen, there is no reason to hold software stocks right now because there isn’t a catalyst to drive their valuations up. Software Companies’ AI Transformation Progress Is Slow Most software developers have yet to demonstrate substantial appeal in their AI products. Salesforce has consistently promoted the adoption of its Agentforce product, but there is no obvious impact on revenue. Adobe has integrated generative AI into its photo and video editing software, but it didn’t update certain AI-related metrics in its latest quarterly earnings report in December. Wong said that existing software companies have advantages in distribution and data, but they need to show accelerated growth to drive a rebound in their stock prices, which seems unlikely in the short term. According to Bloomberg Intelligence data, earnings growth for software and services companies in the S&P 500 is expected to slow from about 19% in 2025 to 14% in 2026. In contrast, other tech sectors have more optimistic fundamental outlooks. Because tech giants like Microsoft, Amazon, Alphabet, and Meta Platforms have committed to investing heavily in AI infrastructure this year, chipmakers such as Nvidia have much clearer visibility on revenue growth. According to Bloomberg Intelligence data, semiconductor-related stocks are expected to see profit growth of nearly 45% in 2025, accelerating to 59% in 2026. “Chipmakers are outperforming because their fundamentals are greatly improving, and given their customer base, growth certainty is higher,” said Jonathan Cofsky, a portfolio manager at Janus Henderson Investors. “Meanwhile, uncertainty about how AI will change the software ecosystem is much greater.” Low Valuations Trigger Divergence Although valuations are at historic lows, there’s still divergence in the market regarding software stock prospects. “Software companies have high valuation multiples because of their subscription-based models, offering recurring revenue that can be extrapolated almost indefinitely,” Wong said. “If they have to compete with AI agents that run around the clock, accomplish tasks, and can complete large projects in a day, it’s hard to know at what multiple they should trade.” However, some Wall Street firms remain optimistic about a rebound in the sector. Barclays expects software stocks will “finally turn the corner” in 2026, as customer spending holds steady and valuations are attractive. Goldman Sachs anticipates that increasing AI adoption will further expand the total addressable market and provide more tailwinds for software companies. D.A. Davidson believes that, since narrative has overshadowed fundamentals for many software companies, 2026 will be a good time for selective returns to the sector. “We can't say the turning point has come yet, since existential concerns about AI will persist for some time, but the sector does look more attractive,” said Chris Maxey, Managing Director and Chief Market Strategist at Wealthspire, which manages $580 billion in assets. “It’s not an obvious buying opportunity yet, but we’re getting close to that point.” Risk Warning & Disclaimer The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account individual users’ investment objectives, financial condition, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investment decisions based on this article are at your own risk.