By Martin Baccardax

Doublethink is a core theme in George Orwell's "1984" -- believing two contradictory ideas at the same time. It's what Wall Street is doing right now.

Investors are transitioning from the megacap tech giants amid concerns over the pace of artificial-intelligence spending, while buying stocks of companies that rely on the input costs of soaring commodity prices to maintain their profit margins.

They're also dumping software stocks following a largely untested thesis that suggests Anthropic's new AI-powered ad-on will render the sector obsolete, while continuing to question the pace at which companies are adopting the new technology.

For Bank of America's Vivek Arya, the software selloff has a whiff of the stock market's DeepSeek meltdown a year ago, when the launch of a cut-priced AI chatbot spooked investors who had piled into U.S. tech stocks.

The stock losses, Arya wrote on Wednesday, imply all the money being poured into AI is unsustainable and won't bring in equally massive returns -- and at the same time suggest AI adoption will be "so pervasive and productivity-enhancing" that software becomes obsolete.

"Both outcomes," he said, "cannot occur at once."

Yet, that's what the market thinks. Or doublethinks.

This year's worst-performing sectors are information technology and financials, which are down 1.3% and 2.3% respectively, and communications services is essentially flat. An index of the Magnificent Seven tech companies is down 2.1%.

And data from Barchart show the iShares North American Tech-Software ETF is underperforming the broader Nasdaq benchmark by the most in more than two decades.

Capital Economics' James Reilly sees a way out of the market contraction, arguing the decline in software stocks is more closely tied to company specifics than sector skepticism.

"Ultimately, firms' exposures to the AI revolution can be grouped into one of three boxes: those who enable, those who adopt, and those who are disrupted," said Reilly, Capital's senior market economist.

"Investors have simply been taking the view that the benefits accruing to the enablers and users would outweigh the costs to those disrupted," he added. "We doubt the latest news changes much on that front -- so, we expect the stock market to rally before long."

Still, narrowing in to individual names reveals some pretty heavy pessimism. And that could take a good deal of time to overcome.

Oracle is now some 53% south of its 52-week high. CoreWeave is down 51% and Salesforce down 45%. Workday and Adobe -- 42% and 41%, respectively. Duolingo has crashed more than 78% from its May 2025 peak.

"Software stocks are likely nearing capitulation, and that's more likely for the high-quality companies within this group," said Bret Kenwell, U.S. investment analyst at eToro.

"However, once this selloff is over, will there be a new ceiling on just how much investors are willing to pay for them?," he asked. "If so, that could limit the upside and the recovery time for this space -- high quality or not."

Arya, however, remains optimistic that investors will see the thread that ties AI capex -- which Gartner estimates will reach $2.5 trillion this year -- to widespread adoption.

"AI models provide unprecedented levels of intelligence, yet harnessing and productizing that intelligence will take time, likely the next several years," he said. "We expect the volatility to moderate as earnings and guidance clarify the outlook this reporting season."

That's an outcome that would be, in the words of Orwell himself, "doubleplusgood".

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 04, 2026 15:11 ET (20:11 GMT)

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