Explained — Why US Software stocks, Infosys, Wipro ADRs fell up to 25% overnight

Shares of Thomson Reuters Corp., CS Disco Inc., Legalzoom.com Inc. Gartner Inc. fell up to 25% on Tuesday, February 4 in regular trading on Wall Street. Shares of Indian IT companies Infosys and Wipro, listed on Wall Street, known as American Depository Receipts (ADRs), also fell up to 7% in overnight trade.

The sell-off emerged after AI start-up Anthropic released a productivity tool for in-house lawyers. The development has added to the already bearish sentiment surrounding software stocks owing to perceived threats to their business models after the emergence of Artificial Intelligence.

Videogame stocks had sold off last week n Wall Street after Google-parent Alphabet rolled out Project Genie, which could create immersive worlds with text or image prompts.

As a result, the S&P North American Software index is on a three-week losing streak and declining 15% in January to mark its biggest monthly fall since October 2008.

Such has been the sentiment around these software stocks that brokerage firm Jefferies has gone on to call it the "SaaSpocalypse". Jefferies has called the trading activity around these stocks a "get me out" style selling.

These concerns have spilled over to Private Equity as well, with firms such as Arcmont AMC and Hayfin Capital Management hiring consultants to check portfolios for "vulnerable" businesses, according to a Bloomberg report. Apollo has cut its direct lending funds' software exposure by nearly 50% in 2025, from around 20% at the start of last year.

The same AI-related fears has prompted brokerage firm Piper Sandler to downgrade stocks such as Adobe Inc., Freshworks Inc. and Vertex Inc. on Monday.

Software stocks are now trading at 23 times their estimated earnings, the lowest in around three years due to the sell-off. Their 14-day Relative Strength (RSI) on the charts is also in "Oversold" territory. However, BTIG's Chief Market Technician, Jonathan Krinsky believes that while all of this is true, it will take a long time for these stocks to repair and build a new base. "We have not been fans of software for a while given the deteriorating relative strength that really accelerated” in the fourth-quarter of last year," he wrote.

Here's how the stocks fared last night:

Wipro ADRs ended 4.8% lower at $2.56.

Infosys ADR ended 5.6% lower at $17.32.

Gartner shares ended 21% lower at $160.16.

Salesforce shares ended 6.8% lower at $196.38.

Adobe shares fell 7.3% to $271.93 on Tuesday.

(With Inputs From Agencies)