Software stocks on Thursday further plunged amid an ongoing intense sell-off this year as investors pulled back from the sector amid mounting fears that artificial intelligence could disrupt many companies' business models. The iShares Expanded Tech-Software Sector ETF (IGV) fell 5. 4%, marking its largest one-day drop since last April during the tariff-related downturn. The fund is now down roughly 22% from its recent peak, pushing the software industry into bear-market territory and highlighting the rapid shift in sentiment against one of Wall Street’s former favorite sectors. For the month to date, IGV has declined more than 13%, on track for its worst monthly performance since October 2008, when the fund fell 23%. Mega-cap Microsoft added to the downward pressure, dropping 10% after reporting a deceleration in cloud growth for the fiscal second quarter, setting the stock on course for its steepest one-day loss since March 2020. The company also issued softer-than-anticipated guidance on operating margins for the fiscal third quarter. Investor concerns have been heightened by the swift pace of AI development itself. Anthropic launched Claude Opus 4. 5 late last year, its third major model release in just two months. The company stated that the model excels in coding, computer operation, and assisting with complex enterprise tasks, with ideal users being professional software developers and knowledge workers such as financial analysts, consultants, and accountants. “It is somewhat embarrassing that in 10 days, Anthropic was able to create, collaborate, release it, and everyone. . .

could look at it and say, ‘Wow, why isn’t Microsoft doing that?Why don’t I know about that?’ And that is a narrative they need to fix, ” said Ben Reitzes, head of technology research at Melius Research, on CNBC’s “Squawk on the Street. ” “I think patience is going to run thin on Wall Street. ” Also on Thursday, SAP dropped 15. 2% after the German software giant reported weaker-than-expected growth in its cloud contract backlog for the fourth quarter. The current cloud backlog increased 16% to 21. 1 billion euros (US$25. 3 billion), falling short of the anticipated approximately 26% growth, which UBS analysts described as a “disappointment. ” ServiceNow CEO Bill McDermott aimed to reassure investors on the company’s earnings call Thursday, stating that fears AI will displace software vendors are misplaced. “The real payoff comes when trillions of tokens move beyond pilots to be embedded directly into the workflows where business decisions are made, ” McDermott stated. “ServiceNow is the gateway to this shift, serving as the semantic layer that makes AI pervasive in the enterprise. ” He added that since AI systems are probabilistic, organizations still require workflow software to guarantee consistent business outcomes. — With assistance from CNBC’s Samantha Subin.