Published January 30, 2026
One of the projected victims of AI is the land of software. Investors believe, perhaps incorrectly, that AI will make large-scale software platforms unnecessary. Who needs a large HR software package when an AI bot can replicate the functionality at a fraction of the cost? So the theory goes. The market results have been harsh as shown in the analysis below from Blake Millard:
“Software stocks show extreme weakness, enter a bear market
Many investors who own Software stocks are aware this sector has been knee-capped very hard over the last three months, in both absolute and relative terms.
Yesterday, it was Microsoft’s turn to further disappoint the Software complex.
Microsoft posted 4th quarter earnings which showed subscriber growth and monetization challenges related to Copilot and its AI business, as well as its Azure cloud revenue stall out further.
The result?
Investors took the name behind the woodshed and sold shares down -9.99% Thursday – erasing $357 billion in market cap, its worst plunge since DeepSeek hit Nvidia in early 2025.
The selloff comes amid heightened skepticism from investors that the hundreds of billions of dollars Big Tech is spending on Artificial Intelligence will eventually pay off.
With Microsoft’s tough quarter in tow, alongside ServiceNow having also reported unsatisfactory earnings results, the rest of the Software names were hit brutally hard today.
As a result, the iShares Expanded Tech-Software Sector ETF (IGV) dropped -4.94% in Thursday’s session and now sits in a technical bear market down more than -20% from its late October cycle high.
It was the worst one-day selling pressure for the group since the Liberation Day lows.
Many investors who are expecting the broader U.S. indexes to continue to push higher have a growing problem with regard to Tech: Software remains in a structural downtrend line and continues to underperform in a meaningful way. One of the bull’s most offensive groups is stuck in the mud.”
Market Update
Stocks opened the week with a +0.5% advance as investors awaited the earnings reports of technology giants and a Federal Reserve interest rate decision all due midweek. Tuesday brought more gains for technology companies ahead of the earnings with semiconductors faring especially well. Memory company Micron got a +5% boost upon breaking ground on a new factory. Healthcare insurers were hammered when the Federal Government proposed lower Medicare payment rates than previously outlined. Wednesday’s Fed interest rate announcement sent interest rates initially higher before pulling back to record only a modest uptick. The Central Bank held short-term rates in check and offered little hope that they would change that stance in the near-term. Stocks were little changed in Wednesday’s trade ahead of earnings from Microsoft, Meta and Tesla after the bell. Microsoft posted a strong earnings report but the company’s shares were hit hard losing -10% in Thursday’s session. Investors were concerned about slowing growth in the company’s cloud support business. The move took the entire software sector down sharply. On the other hand, Meta’s shares added +10% on their earnings report to provide a bit of an offset to the Microsoft news. Other company earnings reports were generally well-received with Southwest Airlines, IBM, Lockheed Martin, Caterpillar, Honeywell, Mastercard, and Royal Caribbean all seeing notable share gains. After the close, Apple reported massive iPhone orders which helped the company’s shares close slightly positive in what proved to be a dramatic Friday session. President Trump appointed Kevin Warsh as the next Fed Chairman capping months-long speculation over who would take the position. Trump has been very critical of the Central Bank’s unwillingness to lower interest rates further and has gone so far as to file a criminal lawsuit against Fed Chair Powell. Oddly, the market’s reaction to the Warsh appointment was to see interest rates and the U.S. dollar RISE as the market views Mr. Warsh as an inflation hawk – e.g. someone with a priority to push interest rates higher to fight inflation. That stance is completely at odds with President Trump’s push for lower interest rates and an explicit willingness to push the U.S. dollar lower to facilitate more demand for U.S. goods. Whether the market has got it wrong or not, time will tell. For Friday, the appointment sent the U.S. dollar notably upward producing a dramatic effect on the soaring precious metals trade. After an extremely volatile week, gold and silver got wrecked Friday taking the entire metals complex down. Copper, platinum, palladium, gold and silver all received harsh treatment with the high-flying silver ETF plunging almost -30% Friday. By comparison, stocks had a relatively muted reaction with the Nasdaq 100 (QQQ) falling -1.2% while the S&P 500 was only fractionally off.
For the week, the S&P 500 (SPY) managed to hold on to a +0.40% rise. The Nasdaq 100 (QQQ) with four of its largest components reporting earnings dipped -0.14%. Small cap stocks (IWM) fell -1.95% though they close the month of January with strong gains and well ahead of their large-cap brethren.
Warm wishes and until next week.