Why are software stocks falling?
- Kevin W. Frisz
- Jan 16
- 2 min read
Updated: Jan 19
Friday, January 16, 2026
Summary
The markets are quiet today. The S&P is up only 0.1%, and most stocks aren’t
moving much. The market is moving slightly higher on news that the President might keep economic advisor, Kevin Hassett, in his current role, rather than nominate him for Fed Chair.
As we’ve discussed ad nauseum, the markets need an independent Fed. And the general feeling is that Hassett (currently the President’s chief economic advisor) would be too subservient to the President’s wishes. The Polymarket odds on Hassett dropped on the headline, and the S&P 500 turned higher.
Will AI Eat Software?
What’s going on with enterprise software stocks lately? Software accounts for around 12% of the total S&P 500. Looking at their results, things are going great! Salesforce (CRM) reported a blowout quarter last month. As a reward, the stock is dropping sharply this year.
And they’re not alone. The large software stocks include: ServiceNow (NOW), Workday (WDAY), Salesforce (CRM), Adobe (ADBE), and others.
The average person might not know these very well. But businesses use them heavily. And here’s the crux of the problem: they charge on a “per seat” model. So, if a law firm uses Salesforce to track its clients, Salesforce will charge the firm per user. However(!), with the upcoming AI wave, the fear is that fewer USERS will be needed. And that will result in a fundamental threat to their business model.
Some are calling 2026 the year of the agent. By that, they mean there’s a new type of AI coming – “agentic AI”. The current AI that we all know and love is referred to as “generative AI”. Generative AI generates responses based on questions or prompts. This is ChatGPT, Gemini, Claude, etc.
However, Agentic AI is proactive. It is assigned a task. It figures out what steps are required for that task. And then it completes the task on its own, with little intervention from a human being.
Now, how real is all of this? That’s the key question. Looking at the results, it’s not affecting big companies at all – at least not yet. Their results are still good. And the software companies will adapt their business models this year – both to change their pricing structure and incorporate “agent AI” models of their own. But the fear is real. And the fear is what’s hitting their PE multiples.
It’s creating an interesting bifurcation within the tech sector— the semi stocks go higher, while the software stocks go lower. Needless to say, the software stocks need to respond this year. It will be an interesting trend to track.
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