Software Stocks Collapse Again! Amazon's New Tool Triggers Domino Effect, Software ETF Plummets 4%, Year-to-Date Decline Expands to 23%

Software stocks faced a heavy blow on Tuesday, with multiple negative factors piling up, reigniting market concerns that artificial intelligence will disrupt traditional software business models.

On March 24, according to The Information, Amazon’s cloud computing division AWS is developing AI agents to automate functions in sales, business development, and other roles—areas recently affected by Amazon’s large-scale layoffs.

Meanwhile, AI startup Anthropic released an upgraded version of its Claude on Monday evening. The new version can take over tasks like browsing the web and filling out spreadsheets on users’ computers, further fueling market fears of AI replacing human jobs.

On Tuesday, software stocks experienced a collective plunge. The iShares Technology Software Sector ETF fell over 4% that day, marking its largest single-day decline in nearly a month. Year-to-date, it has fallen by 23%, potentially marking the worst quarterly performance since 2008. In contrast, the semiconductor stock index rose 1.2%.

(The Blue Line Software Sector ETF dropped over 4% on the day, while the Orange Line Philadelphia Semiconductor Index rose 1.2%)

Currently, the forward P/E ratio of the tech software sector has fallen below the overall S&P 500 level. Some market analysts have bluntly stated:

The software sector is experiencing a massive destruction of capital.

For investors, it remains uncertain whether the valuation recovery window for this sector will open before AI’s impact on enterprise software subscription models shifts from narrative to actual performance.

AWS develops AI agents, Anthropic releases desktop AI, targeting white-collar automation

According to The Information, citing insiders, AWS is developing AI agents capable of handling part of the workload for thousands of technical experts in cybersecurity, server networks, and related fields.

The report notes that these agents aim to automate functions previously performed by sales and business development staff, roles that have been impacted by Amazon’s recent layoffs.

The report further intensifies market worries about “internal AI substitution.” Tech giants are not only cutting jobs but also filling the gaps with self-developed AI tools. For traditional software subscription models based on enterprise user counts, this trend poses a direct threat.

Earlier on Monday night, Anthropic made two major updates to Claude.

First, the new version of Claude Cowork desktop AI agent, which has enhanced control over Mac systems and can be operated remotely via the Claude mobile app.

Second, according to a research report from Anthropic Economic Index, the use cases for Claude are rapidly expanding from programming and development to office administration, finance, and management tasks.

The report also pointed out that experienced users with “AI fluency” tend to achieve better results than beginners, leading to a productivity and income divide within the same roles. Market interpretation sees this as an early sign of AI replacing ordinary white-collar jobs.

It is worth noting that the report states that desktop AI agents are still in early research stages, accompanied by risks such as data leaks, accidental deletions, and new security vulnerabilities.

Multiple pressures intertwined, sector under pressure from various factors

Mizuho Securities’ Equity Trading Executive Director Daniel O’Regan said that the weakness in software stocks on Tuesday was due to a combination of small factors. Besides AWS developing AI agents and the new Claude release, he also listed:

First, the 10-year U.S. Treasury yield rose to an 8-month high this week, putting pressure on high-valuation sectors.

Second, Andreessen Horowitz general partner David George wrote that software companies now have only two paths forward: either develop AI-native products to achieve annual revenue growth exceeding 10 percentage points within 12 to 18 months, or rebuild operating profit margins (including stock-based compensation) to 40% or even 50%+.

Third, a research firm issued a negative report on global team collaboration software developer Atlassian, stating that its partners’ performance this quarter was slightly below expectations and that growth is expected to slow by 2026. Atlassian’s stock closed down over 8%.

Fourth, among the tech software ETF components, Circle’s stock plummeted nearly 20% in one day due to concerns over the stablecoin legislation. Although its weight in the ETF is only 0.28%, Daniel O’Regan believes the company, as a stablecoin issuer in fintech, should not be included in this ETF.

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