Is the Software Stock Sell-Off Overdone? Strategists Weigh In

TLDR

• Anthropic launched Claude Cowork AI plugins on Friday for legal, sales, marketing, and data analysis automation, triggering a major sell-off in software stocks
• Thomson Reuters fell 18% on Tuesday in its biggest single-day loss ever, with European legal firms RELX and Wolters Kluwer dropping 14% and 13% respectively
• Salesforce and ServiceNow shares fell more than 9% for the week as the tech-heavy Nasdaq declined over 2%
• Software stocks lost over $300 billion in market value on Tuesday alone, with advertising companies like Omnicom down 11.2% and Publicis down 9%
• Wall Street strategists called the sell-off “overdone” despite AI disruption concerns, noting larger software companies should adapt while cyclical and defensive sectors outperform tech

Anthropic’s release of new Claude Cowork automation plugins on Friday triggered panic selling across software and data analytics stocks. The tools target legal, sales, marketing, and data analysis tasks that companies have charged premium prices to handle for years.

Software stocks experienced violent selling on Tuesday, Wednesday, and Thursday last week. Investors priced in more aggressive disruptions to these businesses from AI advances.

Thomson Reuters led the decline with an 18% drop on Tuesday, heading toward its biggest single-day loss on record. The company owns Westlaw, a major legal database service used by law firms worldwide.

Thomson Reuters shares have fallen 33% this year after dropping 22% in 2025. The company is scheduled to report fourth quarter earnings on Thursday.

Legal and Professional Services Take Heavy Losses

European companies faced similar losses from the AI disruption fears. RELX, a British legal analytics provider, fell 14% on Tuesday in its largest single-day drop since 1988.

The stock has dropped almost 50% from its February 2024 peak. Wolters Kluwer, a Dutch legal services company, declined 13% during the same session.

Factset Research fell 10.5% while Morningstar lost 9%. LegalZoom plummeted 19.7% as investors worried about AI competition replacing traditional services.

In London, Experian, Sage Group, London Stock Exchange Group, and Pearson all fell between 6% and 12%. Mike Archibald, a portfolio manager at AGF Investments, said Anthropic’s plugins directly challenge core legal businesses.

Morgan Stanley analysts noted most investors they spoke with are bearish on Thomson Reuters’ ability to maintain growth. The pessimism reflects broader concerns about AI agents automating high-margin knowledge work.

Large technology companies also experienced selling pressure. Salesforce shares fell more than 9% for the week as did ServiceNow.

Adobe declined 7.3% while Microsoft lost 2.9% on Tuesday. Oracle dropped 3.4% and Nvidia fell 2.8% during the same session.

Broader Market Impact and Strategist Views

The tech-heavy Nasdaq posted a weekly decline of more than 2%. The S&P 500 fell 0.84% on Tuesday alone.

Software stocks lost over $300 billion in market value during Tuesday’s session. The selling extended to advertising companies as well.

Omnicom closed down 11.2% in New York trading. French advertising giant Publicis dropped over 9% after releasing earnings results and announcing plans to spend 900 million euros on acquisitions in 2026.

Pinterest closed down 5.6% while Snap fell 8.4%. Giuseppe Sersale from Anthilia said AI increasingly performs the programming and knowledge services that underpin these business models.

Despite the carnage, several Wall Street strategists urged patience. Brian Levitt, Invesco’s chief global market strategist, said the selling appears overdone given the actual risks.

Companies Positioned to Adapt May Survive

JonesTrading chief market strategist Mike O’Rourke said larger software companies positioned to adapt should be fine. He noted there are new risks but not all companies face severe disruption.

Dave Mazza, CEO of Roundhill Investors, said investors are being more discerning about valuations. Companies are moving from a capital-light industry to a more capital-intensive one focused on AI.

Earnings from Big Tech giants revealed massive AI spending. Capital expenditures from Amazon, Alphabet, Meta, and Microsoft are set to top $650 billion.

Cyclical and defensive sectors have outperformed tech this year. Consumer Staples and Energy remain undervalued according to Mazza.

Levitt advised investors to diversify away from the AI trade. A Friday bounce helped some investors feel better heading into the weekend after the brutal week of selling.

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