Wall Street spent 2024 worshiping artificial intelligence. In 2026, reality has set in.

The S&P 500 is still steady, but software stocks have broken away to the downside in a move that feels less like routine rotation and more like genuine panic — the kind of selloff that usually creates bargains, not last rites.

Software P/E Compression

According to Liz Thomas, Head of Investment Strategy at SoFi Technologies Inc (NASDAQ:SOFI), software's forward 12-month P/E has collapsed from 33.1x to 23.2x — a 30% contraction that pushes valuations back toward 2022 and Covid lows.

In other words, Wall Street isn't trimming exuberance; it is pricing risk as if growth has disappeared altogether. The irony: the sector is spending more on AI than ever.

Software Stocks With Panic (Covid)-Level 52-Week Drawdowns

Five household names now sit in rare drawdown territory that resembles Covid-era stress rather than a normal tech pullback.

Panic Vs. Fundamentals

What ties these moves together is sentiment, not substance. The market is extrapolating worst-case scenarios across software just as the industry's AI foundations are being laid. That creates a classic gap between price and reality.

Investor takeaway: When multiples compress this far and fear dominates this loudly, the real risk isn't buying too early — it's being late when the rebound arrives.

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