The software sector is experiencing its worst market sell-off since the depths of the 2008 financial crisis, but this time the trigger is not a banking collapse, it is artificial intelligence.
The US sector fell 14.5% in January, its worst monthly performance since October 2008. The sell-off accelerated in early February, with a further 10% decline in less than two weeks.
At the heart of the rout is a growing investor concern. Many fear that AI tools may not simply enhance existing software products, but erode parts of the subscription-based business models that have underpinned the sector’s growth for more than a decade.
In the United States, some of the sector’s former high-flyers have seen dramatic reversals.
Unity Software, which provides tools for video game developers, cybersecurity group Rapid7, and customer engagement platform Braze have each lost more than half their market value since the start of the year.
Even the giants have not been spared. Palantir, long considered an AI bellwether, alongside enterprise stalwarts Salesforce, Intuit, and ServiceNow, have fallen by around 30% year-to-date.
One of the key triggers for the sector’s sell-off was Anthropic’s unveiling of new enterprise plugins for its Claude AI assistant in January.
The announcement suddenly pushed investors to ask an uncomfortable question: if AI can do what these software platforms do, why do we need the platforms at all?
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Europe’s broader software sector is valued at roughly €300bn and is heavily concentrated in a handful of companies.
That concentration makes every percentage drop more visible — and more painful.
Germany’s flagship technology group SAP is by far the largest European software company with a market capitalisation of around €200bn.
Shares in SAP have already fallen roughly 20% year-to-date and by 40% since its peak in February 2025.
In terms of market value, SAP has wiped out €188bn over the past year alone, nearly half of its current capitalisation.
Even more worrying than the number is the trend: SAP is heading for its ninth straight month of decline. That’s never happened in over 30 years of trading.
For a company long seen as a pillar of European tech resilience, the symbolism is stark.
France’s Dassault Systèmes, known for 3D design and engineering platforms used in aerospace and manufacturing, ranks second among Europe’s listed software groups, with a market capitalisation of around €24bn.
Its shares have fallen approximately 25% since the start of the year and are heading for a fifth consecutive month of declines — the longest losing streak since 2016.
In third place sits Sage Group. The British accounting software provider has dropped about 25% year-to-date, including a 17% slide in February alone, putting the stock on course for its weakest monthly performance since July 2002.
British information and analytics group RELX suffered a sharp 17% single-session drop earlier this month — its steepest daily decline since 1988 — and is now on course for what could become its worst month on record.
If Europe’s software heavyweights are under pressure, mid-sized firms are feeling the strain even more acutely.
Smaller companies tend to have narrower client bases and less diversified revenue streams, meaning shifts in investor sentiment can translate into sharper share price swings.
France’s Sidetrade, which uses artificial intelligence to help companies manage order-to-cash processes, has fallen nearly 50% since the start of the year — making it the hardest-hit name in the European software space.
Sweden’s Lime Technologies, a CRM provider focused on the Nordic region, is down almost 38%, while Denmark’s cBrain, known for its digital platforms used by public administrations, has lost roughly 35%.
Norway’s LINK Mobility Group, which provides communications and messaging platforms for businesses, and SmartCraft, delivering cloud-based tools to the construction industry, have each dropped by around 32%.
French group 74Software, specialising in API management and digital finance integration, has recorded a similarly steep decline.
The debate among experts reflects the market’s uncertainty.
Jensen Huang, chief executive of Nvidia, has dismissed the idea that AI will replace software as “the most illogical thing in the world,” arguing that AI will enhance existing systems rather than eliminate them.
Wedbush Securities said markets are pricing in “an Armageddon scenario” that appears disconnected from corporate reality, noting that companies will not rip out software infrastructure overnight.
JP Morgan strategists have similarly suggested that investors are discounting worst-case disruption scenarios that are unlikely to materialise in the near term.
Veteran Wall Street investor Ed Yardeni said markets have swung from “AI-phoria to AI-phobia”, indicating that while industry valuations now appear more compelling, earnings expectations may not yet fully reflect the potential slowdown facing software companies.
Yet others urge caution. Goldman Sachs strategist Ben Snider has warned of “long-term downside risk”, drawing parallels with industries such as newspapers and tobacco that underestimated structural change.
The expert highlighted a fundamental market rotation, with investors rapidly exiting AI-exposed software stocks and reallocating capital towards cyclical and value-oriented sectors more closely tied to the “real economy”.
The central question is whether this marks a necessary repricing of a sector that had benefitted from years of elevated valuations — or the early stages of a more structural reset driven by AI.
For investors, the current sell-off goes beyond quarterly earnings or interest rate expectations. It reflects a deeper uncertainty about how value will be created and captured in an AI-driven economy.
If AI tools reduce the need for multiple layers of enterprise software, margins, and pricing power could come under pressure.
If, instead, AI enhances productivity within existing platforms, today’s correction may prove excessive.
History suggests technology transitions rarely eliminate entire sectors. More often, they reshape competitive hierarchies.
Some companies are likely to emerge stronger, others may struggle to defend pricing power or relevance.
The software industry is not disappearing overnight. But its winners and losers are likely to look very different from those of the past decade.
