Concern over the threat AI poses has hit the shares of companies like Salesforce and Adobe hard.

One of the 21st century's hottest sectors has become a market albatross.

Concern over the threat that artificial intelligence poses to software companies has hit the shares of companies like Salesforce and Adobe hard. Investors are questioning whether software companies that sell to businesses can withstand competition from AI-powered rivals. Lately, the selloff has intensified with each new announcement from AI developers.

That marks a reversal for the industry, which became a Wall Street darling thanks to pricey subscriptions, minimal capital expenditures and strong profit margins. Now investors are wondering how long the pain can last.

Here is what they are tracking:

The software plunge comes even as broader stock indexes hold their ground near records. The State Street SPDR S&P Software & Services ETF, which tracks an equal-weight benchmark of about 140 software companies, has dropped 20% in the first two months of 2026 and almost 30% since its high from this past fall.

Intuit, the maker of TurboTax and QuickBooks, is the S&P 500's worst performer year to date, dropping some 42%. The human-resources software platform Workday isn't far behind, posting a 38% decline.

With those share-price declines has come a rapid drop in valuation. Companies in the State Street software ETF trade at roughly 19 times their next 12 months of earnings, down from a peak of more than 47 times in 2022. Companies in the broad S&P 500, meanwhile, are trading at close to 22 times forward earnings.

Atlassian Corporation PLC, the maker of Jira and Trello, hit a peak valuation of more than 250 times forward earnings in 2021. It is now trading near 22 times forward earnings.

The slump extends beyond stocks. The sector has an outsize presence in the corporate-debt market, owing to a wave of private-equity buyouts that stretched from the late 2010s into the early 2020s.

Software makes up around 13% of speculative-grade corporate loans that were broadly syndicated by banks to investors and an even larger share of private-credit loans made by asset managers directly to companies.

Prices of actively traded software-company loans have tumbled since mid-January, a sign investors are increasingly concerned about a surge in defaults in the sector.

Some of the biggest private lenders are getting caught in the carnage. The investment firms Apollo Global Management, Ares Management and Blue Owl Capital have all followed software stocks lower in recent weeks in the midst of concern about how much of their loan portfolios are tied up in the sector.

All together, components of the State Street software ETF have lost a combined $1.6 trillion in market capitalization this year. Microsoft, AppLovin Corporation, Intuit, Salesforce.com and ServiceNow have each lost at least $50 billion in market capitalization.