Software slumps again with growth hopes ‘dashed on the rocks’

So far, concerns about AI disrupting growth are more about sentiment than financial results. Photo by Michael M. Santiago/Getty ImagesArticle contentShares of software companies fell on Thursday, in the latest example of the group slumping amid concerns about disruption from artificial intelligence services.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentThe iShares Expanded Tech-Software Sector ETF fell 3.6 per cent, extending the previous session’s 0.9 per cent decline. The fund is on track for its lowest close since November 2023, having dropped almost 28 per cent this year. An index of software-as-a-service stocks shed 5.5 per cent, bringing its week-to-date decline to nearly 10 per cent and its 2026 drop to almost 40 per cent.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.We apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Play VideoArticle contentArticle contentThe year’s selloff stems from investor concern that AI offerings will sap demand for services from legacy providers, weighing on their growth and pricing power going forward. The proliferation of so-called AI agents, designed to complete multi-step processes without human interference, has been viewed as a particular challenge for software-as-a-service stocks.Article contentInvestorCanada's best source for investing news, analysis and insight.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article content“We have a threat in the environment that wasn’t there before, and expectations for growth going forward have been dashed on the rocks,” said Kevin Caron, co-chief investment officer at Washington Crossing Advisors. “Pre-AI, the idea that someone could come along and develop some kind of replacement software just wasn’t something anyone had to worry about. Now we have to reassess everyone’s competitive moats.”Article contentArticle contentThe latest concerns on Wednesday arose after Anthropic launched Claude Managed Agents and Meta Platforms Inc. unveiled a new AI model.Article contentAmong notable decliners, Microsoft Corp. fell 1.5 per cent, Palantir Technologies Inc. sank seven per cent, Oracle Corp. dropped 2.8 per cent, Salesforce Inc. shed 3.9 per cent, ServiceNow Inc. slumped 6.4 per cent, and Workday Inc. dropped six per cent.Article contentArticle contentSo far, concerns about AI disrupting growth are more about sentiment than financial results. According to data from Bloomberg Intelligence, the software sector is expected to post earnings growth of 16.5 per cent in 2027, a consensus that has risen in recent weeks; in late February, the consensus was for 15.7 per cent growth. A similar trend has been seen in revenue expectations.Article contentRead More Volatility is normal, panic is optional for investors in these times. Here’s what to keep in mind Terence Corcoran: Excrementalism — Cory Doctorow is totally full of it Article contentThat, coupled with how software valuations are well below their long-term averages, has some viewing the drop as overdone. An index tracking software companies is trading at 20.6 times estimated earnings, compared with its 10-year average of 34.Article content“While there are some long-term concerns, the situation for this year and next still looks relatively solid, and meanwhile software balance sheets are incredible, with very little debt and a lot of cash,” said Caron, who helps oversee about US$11 billion in assets. “The industry continues to have enormous cash flow and profits today, which suggests this could be an interesting entry point.”Article contentBloomberg.comArticle contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Play VideoArticle contentTrending Posthaste: How the U.S. dollar stole the Canadian dollar's petrocurrency thunder News BYD to open 20 car dealerships in Canada this year Autos How the global energy crisis is shaking Canada from coast to coast — and could leave a lasting legacy Oil & Gas 'Time to shift that narrative' — RBC to launch $1-billion fund to help Canadian businesses grow Banking Time is on Canada’s side in CUSMA talks, former trade chief says Economy Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. 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