MW Palo Alto Networks' stock leads another dramatic software selloff. Here's what investors need to know.

By Emily Bary and Hannah Pedone

Investors are concerned that the forthcoming Anthropic Mythos model 'could rearchitect the whole enterprise software stack,' analyst says

Palo Alto Networks is partnering with Anthropic to bolster cybersecurity defenses, but that hasn't been enough to help its stock.

There's more carnage in the software sector on Friday, with shares selling off further on artificial-intelligence fears.

Investors seem increasingly spooked by Mythos, a forthcoming Anthropic model that the company has said is so powerful it could penetrate existing cyber defenses if it's misused by bad actors. Anthropic isn't releasing the model yet and announced earlier this week that it had launched a coalition of leading technology companies that will work pre-emptively to bolster online defenses.

The development is also worrying the U.S. government, with Federal Reserve Chair Jerome Powell and Treasury Secretary Scott Bessent reportedly discussing the potential threat with bank leaders.

See also: Software stocks are having a 'full-fledged breakdown' - and they may fall even further

What these developments mean for cybersecurity stocks is up for debate. On one hand, Anthropic is partnering with leading vendors Palo Alto Networks (PANW) and CrowdStrike Holdings (CRWD), and bulls argue that advanced AI tools will only increase the need for cybersecurity offerings. Yet the possibility that new AI features could overpower mainstream cybersecurity protections is a source of consternation, one that aligns with general questions about the value of traditional software in the AI era.

"Investors are concerned Mythos is so powerful it could rearchitect the whole enterprise software stack in a manner that would diminish the value of packaged software products," D.A. Davidson analyst Gil Luria told MarketWatch.

Palo Alto Networks shares (PANW) are down 8.1% in Friday trading, for the second-worst performance among all S&P 500 SPX components. The stock is headed for its worst single-day decline since Feb. 21, 2024, when it lost 28.4%, according to Dow Jones Market Data.

Don't miss: Palo Alto Networks CEO sends a message through his $10 million stock purchase

Other notable decliners include shares of Snowflake (SNOW), Twilio $(TWLO)$, ServiceNow (NOW), Datadog (DDOG) and CrowdStrike, all off by more than 6%. The iShares Expanded Tech-Software Sector ETF IGV is down 3%.

Investors have been quick to dump or outright short software stocks this year, and Friday's selling action follows a nearly 4% drop for the IGV during Thursday trading.

"No stock was spared yesterday, but in our view, the pullback in [Snowflake] was perhaps the most surprising given that clean and reliable data is going to be key to powering enterprise agents," Evercore ISI analyst Kirk Materne said in a note to clients on Friday.

He also highlighted the heavy pressure on ServiceNow, a stock he deems to be "in clearly 'no man's land' in terms of being stuck between growth and GARP/value investors," a reference to the growth-at-a-reasonable-price valuation philosophy. "But we believe the pullback already prices in a lot of AI disintermediation risk and ignores some downstream opportunities," he said.

UBS, though, downgraded ServiceNow's stock to neutral from buy on Thursday. Analysts led by Karl Keirstead wrote that they previously thought ServiceNow's stock was more insulated from the AI threat, but "our confidence in that view has weakened."

Read: ServiceNow's stock just had its worst quarter on record. What comes next?

-Emily Bary -Hannah Pedone

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April 10, 2026 11:20 ET (15:20 GMT)

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