Wall Street's $2 Trillion Software Stock Wipeout Driven by AI Disruption Fears

Summary

Software stocks experienced the largest non-recessionary 12-month drawdown in over 30 years, falling 34% and wiping out approximately $2 trillion in market capitalization. The sector's S&P 500 weighting dropped from 12.0% to 8.4%. The selloff was driven by investor fears that advanced AI capabilities — particularly agentic AI and AI-powered legal, financial, and operational tools — could disrupt or replace traditional enterprise software. Legal software firms were especially hard hit, with Thoms