What's Happening?
Concerns over artificial intelligence disrupting software companies have led to a significant decline in software stocks, with the iShares Expanded Tech-Software Sector ETF (IGV) down over 20% in 2026. The sell-off intensified after AI startup Anthropic introduced new tools, causing fears of obsolescence in 'software as a service' models. Despite this, Citi analysts see potential for a rebound, identifying software and services stocks with strong earnings prospects that have been undervalued. Companies like Microsoft and Palantir are highlighted as potential buys due to their improved earnings expectations despite recent stock declines.
Why It's Important?
The decline in software stocks reflects broader market concerns about AI's impact on traditional business models.
However, Citi's analysis suggests that some companies may be undervalued, presenting investment opportunities. This situation highlights the tension between technological innovation and market stability, as investors navigate the potential disruption AI could bring to established industries. The outcome of this market adjustment could influence investment strategies and the valuation of tech companies in the U.S., affecting stakeholders across the financial sector.
What's Next?
As investor panic subsides, there may be increased interest in software stocks identified by Citi as undervalued. The market will likely continue to assess the impact of AI on various sectors, with potential shifts in investment strategies as companies adapt to technological changes. Analysts will watch for signs of recovery in software stocks and any further developments in AI technology that could influence market dynamics.
