Software Stocks Plunge Into Bear Market as AI Disruption Fears Mount

U.S. software stocks tumbled Thursday, January 29, 2026, as investor anxiety over AI’s potential to disrupt traditional business models deepened. The iShares Expanded Tech-Software ETF (IGV) plunged as much as 5% intraday — its steepest drop since April 2025 — and slid 21% from recent highs, entering bear market territory. IGV is down nearly 14% in January, on track for its worst monthly performance since October 2008. Even strong earnings from ServiceNow (NOW), which fell 11% despite upbeat guidance, failed to stem selling. Morgan Stanley analysts noted “good isn’t good enough” amid structural doubts over subscription models. Microsoft (MSFT) dropped 10% after cloud growth and margin warnings. Rapid advances in generative AI — like Anthropic’s thrice-updated Claude Opus 4.5 — are accelerating fears of substitution. While executives argue AI complements enterprise software, markets remain focused on near-term disruption risks.