Software stocks were mired in an ongoing sharp sell-off this year on Thursday as investors turned away from the sector amid growing concerns that artificial intelligence could upend many companies’ business models.

this iShares Expanded Technology Software Sector ETF IGV (IGV) fell about 5% in early trading, notching its biggest one-day drop since the tariff-induced downturn last April. The fund is now down about 21% from its recent highs, pushing the software sector into bear market territory and underscoring the rapid shift in sentiment toward one of Wall Street’s former favorite industries.

IGV has fallen nearly 14% so far this month, marking its worst month since October 2008, when the fund fell 23%.

“Good, but not good enough,” Morgan Stanley analysts said in a note on the ServiceNow report. “In an environment where investors are highly skeptical of existing application vendors, solid growth in line with expectations may not change the narrative.”

Pressure has intensified across the industry as investors question whether artificial intelligence competitors and automation tools will erode demand for traditional software licensing and workflows. Valuations once justified by solid subscription growth are being recalibrated as investors assess the possibility that artificial intelligence could permanently shrink long-term revenue potential.

giant capital Microsoft Apply pressure and slide about 10% Reports of economic slowdown Cloud growth in the fiscal second quarter put the stock on track for its biggest one-day drop since March 2020. The company also issued lower-than-expected fiscal third-quarter operating margin guidance.

The rapid pace of AI development itself has added to investor unease. Anthropic selection Claude Opus 4.5 was released late last yearits third major model launched in just two months. The model is good at coding, operating computers and assisting with complex enterprise tasks, and ideal users include professional software developers and knowledge workers such as financial analysts, consultants and accountants, the company said.

“It’s kind of embarrassing that in 10 days, Anthropic was able to invent it, partner with it, launch it, and everyone with a kindergartener can look at it and say, ‘Wow, why didn’t Microsoft do this? Why didn’t I know about it?'” Ben Reitzes, director of technology research at Melius Research, said on CNBC. “This is a problem they need to solve.” “quack in the street“I think Wall Street’s patience is going to run out.”

Also on Thursday, sap German software giant fell as much as 14% Report says growth is weaker than expected Cloud contract backlog in Q4. The current cloud backlog rose 16% to 21.1 billion euros ($25.3 billion), missing expectations for growth of about 26%, which UBS analysts called “disappointing.”

ServiceNow CEO Bill McDermott sought to allay investor concerns during the company’s earnings call Thursday, saying concerns that artificial intelligence will replace software vendors are misplaced.

“The real rewards will come when trillions of tokens move beyond pilots and are embedded directly into the workflows that make business decisions,” McDermott said. “ServiceNow is the gateway to this transformation, serving as the semantic layer to make AI ubiquitous in the enterprise.”

He added that because of the probabilistic nature of AI systems, companies still need workflow software to ensure consistent business outcomes.

— With assistance from CNBC’s Samantha Subin.