The worst start of the year! American software stocks have collapsed because Claude Code is too popular

The explosive popularity of Claude Code has reignited market concerns about the software industry's disruption by AI, with U.S. software stocks facing their worst annual start in years.

Since the beginning of the year, a basket of SaaS stocks tracked by Morgan Stanley has fallen by 15%, further declining after an 11% drop in 2025, marking the worst start to a year since 2022. In terms of valuation, the software stocks tracked by Morgan Stanley are currently trading at 18 times expected earnings for the next 12 months, the lowest level on record, far below the average of over 55 times in the past decade.

Panic spread rapidly after Anthropic launched a new service called "Claude Cowork" on January 12.

Wall Street Insight previously mentioned that the latest version of Claude Code, Claude Opus 4.5, demonstrates astonishing capabilities, with users noting that they completed complex projects in a week that would normally take a year using this tool. Many users shared their experiences on social media of successfully developing their first software without any prior programming knowledge.

This sell-off has intensified the performance divergence between software companies and other sectors of the tech industry. While the Nasdaq 100 index approaches historical highs, companies like ServiceNow Inc. have seen their stock prices drop to multi-year lows. TurboTax's parent company, Intuit Inc., plummeted 16% last week, marking the largest weekly decline since 2022; Adobe Inc. and Salesforce Inc. both fell over 11%.

Despite the attractive valuations, Wall Street analysts point out that in the face of the disruptive uncertainty brought by AI, many buy-side institutions believe there is currently "no reason to hold" software stocks, and they do not see any catalysts for a revaluation in the short term.

Claude Code Intensifies Disruptive Panic

The trigger for this sell-off was the "research preview" service Claude Cowork released by Anthropic. According to the company, this tool can create spreadsheets from screenshots or draft reports based on various notes, primarily developed quickly using AI.

Although the tool has not been fully validated, Mizuho Securities technology industry expert Jordan Klein pointed out that the capabilities it demonstrates are exactly what investors have been worried about, reinforcing the increasingly bearish stance on software stocks in the market.

According to Bloomberg, Bryan Wong, a portfolio manager at Osterweis Capital Management, stated: "The news from Anthropic highlights the difficulty of assessing future growth prospects. The speed of change is unprecedented, which has also peaked the uncertainty about the future.In a report to clients on January 14, Klein bluntly stated that many buy-side investors believe there is currently no reason to hold software stocks, regardless of how cheap the stock prices are or how much they have fallen, as there are no catalysts to drive a rebound in valuations.

Slow Progress in AI Transformation of Software Companies

Most software manufacturers have yet to demonstrate significant appeal for their AI products. Salesforce has been promoting the adoption of its Agentforce product, but the impact on revenue has not been significant. Adobe has integrated generative AI capabilities into its photo and video editing software, but did not update some AI-related metrics in its latest quarterly report from December last year.

Wong stated that existing software companies have advantages in areas such as distribution and data, but they need to show accelerated growth to drive a rebound in stock prices, which seems unlikely in the short term. According to Bloomberg Intelligence data, the earnings growth of software and services companies in the S&P 500 is expected to slow from about 19% in 2025 to 14% in 2026.

In contrast, the fundamental outlook in other technology sectors is more optimistic. With tech giants like Microsoft, Amazon, Alphabet, and Meta Platforms committing to significant investments in AI infrastructure this year, chip manufacturers like Nvidia have clearer visibility on revenue growth. According to Bloomberg Intelligence data, semiconductor-related stocks are expected to see profit growth of nearly 45% in 2025, accelerating to 59% in 2026.

"The reason chip manufacturers are performing well is that their fundamentals are improving significantly, and given their customer base, the certainty of growth is higher," said Jonathan Cofsky, portfolio manager at Janus Henderson Investors. "Meanwhile, the uncertainty about how AI will change the software ecosystem is much greater."

Valuation Slump Sparks Divergence

Despite valuations having fallen to historical lows, there remains a divergence in the market regarding the outlook for software stocks.

"The reason software companies have high valuation multiples is that they operate on a subscription model, which provides recurring revenue that can be extrapolated almost indefinitely," Wong stated. "If they are to compete against AI agents that can operate around the clock, complete tasks, and finish large projects in a day, it is hard to know what multiple they should trade at."

However, some Wall Street firms are optimistic about a rebound in the sector. Barclays expects software stocks to "finally see a turnaround" in 2026, as customer spending remains stable and valuations are attractive. Goldman Sachs anticipates that rising AI adoption rates will bring more tailwinds to software companies by expanding the overall addressable market. D.A. Davidson believes that 2026 is a good time to selectively return to the sector, as narratives have overshadowed the fundamentals of many software companies.

"We can't say the turning point has arrived yet, as concerns about the existence of AI will persist for some time, but the sector does look more attractive," said Chris Maxey, managing director and chief market strategist at Wealthspire, which manages $580 billion in assets. "This sector is not yet an obvious buying opportunity, but we are approaching that point.""