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Anthropic launches enterprise AI plugin, could this mark a turning point for the software sector?
牛牛Insights
joined discussion · Feb 10 11:11 ·

Software stock crash wipes out trillion-dollar market value! Microsoft's valuation falls below IBM's for the first time in years—is this a buying opportunity or a value trap?

Author | Eric From the start of 2026 to date, the software sector is undoubtedly the worst-performing segment in the US stock market. The S&P 500 Software & Services Index has fallen over 15% so far this year. This sell-off in software stocks sharply accelerated at the end of January. $Microsoft (MSFT.US)$ After earnings reports, the downturn abruptly intensified into a panic-driven sell-off across the entire industry. In just seven trading days up to last Thursday, the index shed approximately1 trillion U.S. dollarsof its market value, which Wall Street has dubbed 'Software Doomsday.' Although the market saw a belated rebound on Friday and Monday (rising 2.4% and 2.9%, respectively), even after the recovery, the index remains about 13% lower than before the plunge at the end of January. The debate about the future of software stocks is far from settled. Microsoft's sharp decline prompts a reevaluation of the software industry $Microsoft (MSFT.US)$ The recent crash is not just an isolated case; the entire industry is undergoing a valuation reassessment. Microsoft’s earnings report sent two key signals: cloud business growth remains robust, but the AI transformation has completely altered software pricing rules. Despite Azure revenue growing by39%, Microsoft's cloud revenue reachedUSD 51.5 billion, the stock price still suffered a severe blow. The root cause lies in the market's high standards for earnings reports. Investors witnessed skyrocketing AI capital expenditures and urgently need to confirm whether revenue and profit margins can sustain growth during this transitional period. Microsoft's Azure performance this quarter compared to competitors $Alphabet-C (GOOG.US)$ 、 ��...
Author | Eric
Since the beginning of 2026, the software sector has undoubtedly been the worst-performing segment in the US stock market. The S&P 500 Software & Services Index has fallen more than 15% so far this year. This sell-off in software stocks abruptly accelerated at the end of January, $Microsoft (MSFT.US)$ following the earnings report, evolving into a panic-driven sell-off across the entire industry.
In just seven trading days up to last Thursday, the index lost approximately1 trillion U.S. dollars of its market value, which Wall Street has dubbed 'Software Doom.' Although the market saw a belated rebound last Friday and Monday (rising 2.4% and 2.9%, respectively), even after the rebound, the index remains about 13% lower than before the late-January plunge. The debate over the outlook for software stocks is far from over.
Microsoft's sharp decline triggers a revaluation of the software industry
$Microsoft (MSFT.US)$ The recent crash is not just an isolated case for one company; the entire industry is undergoing a valuation reassessment. Microsoft’s earnings report this time delivered two signals: cloud business growth remains robust, but the AI transformation has completely changed the pricing rules for software. Despite Azure’s revenue growing by39%, Microsoft's cloud revenue reachedUSD 51.5 billion, the stock price still suffered a significant blow.
Author | Eric From the start of 2026 to date, the software sector is undoubtedly the worst-performing segment in the US stock market. The S&P 500 Software & Services Index has fallen over 15% so far this year. This sell-off in software stocks sharply accelerated at the end of January. $Microsoft (MSFT.US)$ After earnings reports, the downturn abruptly intensified into a panic-driven sell-off across the entire industry. In just seven trading days up to last Thursday, the index shed approximately1 trillion U.S. dollarsof its market value, which Wall Street has dubbed 'Software Doomsday.' Although the market saw a belated rebound on Friday and Monday (rising 2.4% and 2.9%, respectively), even after the recovery, the index remains about 13% lower than before the plunge at the end of January. The debate about the future of software stocks is far from settled. Microsoft's sharp decline prompts a reevaluation of the software industry $Microsoft (MSFT.US)$ The recent crash is not just an isolated case; the entire industry is undergoing a valuation reassessment. Microsoft’s earnings report sent two key signals: cloud business growth remains robust, but the AI transformation has completely altered software pricing rules. Despite Azure revenue growing by39%, Microsoft's cloud revenue reachedUSD 51.5 billion, the stock price still suffered a severe blow. The root cause lies in the market's high standards for earnings reports. Investors witnessed skyrocketing AI capital expenditures and urgently need to confirm whether revenue and profit margins can sustain growth during this transitional period. Microsoft's Azure performance this quarter compared to competitors $Alphabet-C (GOOG.US)$ 、 ��...
The root cause lies in the market's high standards for financial reports. Investors have observed soaring AI capital expenditures and are eager to confirm whether revenue and profit margins can maintain continuous growth during the transition period. Microsoft’s Azure performance this quarter has been notably lackluster compared to competitors. $Alphabet-C (GOOG.US)$ 、 $Amazon (AMZN.US)$ The successive releases of new models by Anthropic and OpenAI, along with new vertical industry tools, have triggered widespread concerns about the potential replacement of traditional software by large AI models. This has rapidly affected the entire industry, causing a trillion-dollar scale sell-off across the sector since the end of January.
A paradigm-shifting signal: Microsoft is currently cheaper than IBM
According to Bloomberg’s forward price-to-earnings ratio data, this reveals a phenomenon unseen in the past decade. $Microsoft (MSFT.US)$ The current forward 12-month price-to-earnings ratio is approximately 23 times, while $IBM Corp (IBM.US)$ IBM’s is around 24 times.This marks the first time since 2013 that Microsoft's valuation has fallen below IBM’s on this key metric.
The specific numerical difference is not important; what matters is the signal the market is sending.Investors are no longer automatically assigning a high valuation premium to high-quality software stocks.As AI nibbles away at global IT software budgets, the market has begun to reassess the true value of software stocks,How easily can those so-called 'recurring revenues' still be 'recurring'?
Author | Eric From the start of 2026 to date, the software sector is undoubtedly the worst-performing segment in the US stock market. The S&P 500 Software & Services Index has fallen over 15% so far this year. This sell-off in software stocks sharply accelerated at the end of January. $Microsoft (MSFT.US)$ After earnings reports, the downturn abruptly intensified into a panic-driven sell-off across the entire industry. In just seven trading days up to last Thursday, the index shed approximately1 trillion U.S. dollarsof its market value, which Wall Street has dubbed 'Software Doomsday.' Although the market saw a belated rebound on Friday and Monday (rising 2.4% and 2.9%, respectively), even after the recovery, the index remains about 13% lower than before the plunge at the end of January. The debate about the future of software stocks is far from settled. Microsoft's sharp decline prompts a reevaluation of the software industry $Microsoft (MSFT.US)$ The recent crash is not just an isolated case; the entire industry is undergoing a valuation reassessment. Microsoft’s earnings report sent two key signals: cloud business growth remains robust, but the AI transformation has completely altered software pricing rules. Despite Azure revenue growing by39%, Microsoft's cloud revenue reachedUSD 51.5 billion, the stock price still suffered a severe blow. The root cause lies in the market's high standards for earnings reports. Investors witnessed skyrocketing AI capital expenditures and urgently need to confirm whether revenue and profit margins can sustain growth during this transitional period. Microsoft's Azure performance this quarter compared to competitors $Alphabet-C (GOOG.US)$ 、 ��...
Bull vs. Bear: Two starkly contrasting interpretations
Bullish perspective: Valuations have fallen to attractive levels
When Microsoft's valuation falls below that of IBM, it indicates the market has fully priced in expectations of slower future growth and declining profit margins for Microsoft.
Bulls argue that Microsoft’s core businesses remain solid: for instance, enterprises cannot function without Office, security compliance is a necessity, and cloud migration represents a long-term trend. This is simply an overreaction driven by sentiment, and high-quality assets will ultimately stand out once sentiment stabilizes.
Bearish perspective: The logic of the business model is changing
Bears believe that even if software companies survive, AI will squeeze their profitability.
Gartner forecastssoftware spending to reach approximately $1.4 trillion by 2026, but the flow of capital is undergoing a structural shift. More budget is being allocated to AI models, inference, and infrastructure. If the software industry's business model shifts from SaaS's"pay-per-user"to AI tools' "pay-per-usage",revenue will become unpredictable,and gross margins will be squeezed due to rising computing power costs.In this environment, it is reasonable for sector valuations to decline.
Author | Eric From the start of 2026 to date, the software sector is undoubtedly the worst-performing segment in the US stock market. The S&P 500 Software & Services Index has fallen over 15% so far this year. This sell-off in software stocks sharply accelerated at the end of January. $Microsoft (MSFT.US)$ After earnings reports, the downturn abruptly intensified into a panic-driven sell-off across the entire industry. In just seven trading days up to last Thursday, the index shed approximately1 trillion U.S. dollarsof its market value, which Wall Street has dubbed 'Software Doomsday.' Although the market saw a belated rebound on Friday and Monday (rising 2.4% and 2.9%, respectively), even after the recovery, the index remains about 13% lower than before the plunge at the end of January. The debate about the future of software stocks is far from settled. Microsoft's sharp decline prompts a reevaluation of the software industry $Microsoft (MSFT.US)$ The recent crash is not just an isolated case; the entire industry is undergoing a valuation reassessment. Microsoft’s earnings report sent two key signals: cloud business growth remains robust, but the AI transformation has completely altered software pricing rules. Despite Azure revenue growing by39%, Microsoft's cloud revenue reachedUSD 51.5 billion, the stock price still suffered a severe blow. The root cause lies in the market's high standards for earnings reports. Investors witnessed skyrocketing AI capital expenditures and urgently need to confirm whether revenue and profit margins can sustain growth during this transitional period. Microsoft's Azure performance this quarter compared to competitors $Alphabet-C (GOOG.US)$ 、 ��...
Summary
$Microsoft (MSFT.US)$ Microsoft may still emerge as the ultimate winner, but the valuation framework for software stocks is being reshaped. The key variable going forward is the pace of AI monetization—whether AI revenue can outpace costs and whether companies will view AI as essential.
The market rebound last Friday and this Monday may have been more of a brief emotional release, failing to truly address concerns over the business model. This week, numerous star SaaS stocks, including $Datadog (DDOG.US)$ 、 $Cloudflare (NET.US)$ 、 $Unity Software (U.US)$ 、 $Shopify (SHOP.US)$ 、 $Applovin (APP.US)$ 、 $Twilio (TWLO.US)$ , are set to report earnings; pay attention to management’s response to the recent sell-off in software stocks.
牛牛Insights related historical articles:
Trillion-Dollar Gamble on AI: Tech Giants' Collective Spending Sparks Market Panic—Mispriced or Bubble?
Microsoft Sounds the Alarm: AI Is Eating Into Software Giant's Profits
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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