Tech rout deepens as AI fears hit software and cloud bellwethers

A sharp selloff in major tech names intensified Thursday, rattling investors who had piled into software and AI plays and raising fresh questions about concentration risk in client portfolios.

The Nasdaq composite fell more than 2% as Microsoft led a broad decline in megacap tech stocks.

After reporting slower cloud growth and higher spending on AI infrastructure, Microsoft's stock slid about 10%, putting it on track for its steepest one-day drop since early 2020 and setting the pace for the rest of the sector.

Software names bore the brunt of the move. As reported by CNBC, the iShares Expanded Tech-Software Sector ETF dropped about 5% in morning trading, on pace for its worst single session since last April. That brought the fund down roughly 21% from its recent high, meeting the common definition of a bear market. It's also down almost 14% so far this month, its weakest stretch since October 2008.

The downdraft has come even as some leading software firms report solid results. ServiceNow beat Wall Street’s fourth-quarter expectations and issued guidance ahead of forecasts, yet its shares still tumbled more than 11% Thursday. Analysts at Morgan Stanley summed up the mood by describing the quarter as “good, but not good enough,” adding that “in an environment of heightened investor skepticism on incumbent application vendors, stable growth, in line with expectations, likely falls short of shifting the narrative.”

Investors are grappling with a fast-moving AI landscape that could disrupt traditional software business models. The sector’s selloff has coincided with rapid progress from foundation model providers, including new releases that promise to handle coding, workflow automation and complex knowledge work for professional users such as developers, analysts and consultants. That has prompted investors to reassess whether long-term subscription growth for existing software suites might be at risk.

ServiceNow chief executive officer Bill McDermott pushed back on that view during the company’s earnings call, arguing that AI and workflow software are complementary rather than substitutes.

“The real payoff comes when trillions of tokens move beyond pilots to be embedded directly into the workflows where business decisions are made,” McDermott said. “ServiceNow is the gateway to this shift, serving as the semantic layer that makes AI ubiquitous in the enterprise.”

Cloud and database providers tied closely to AI infrastructure have also come under pressure. Oracle shares have dropped more than 50% from their record high in September – a rally that made co-founder Larry Ellison the world's richest individual, if only for a moment – erasing roughly $463 billion in market value and underscoring investor unease about how quickly heavy AI capital spending will translate into profits. The company’s high-profile bets on data centers and partnerships tied to AI demand, once seen as a clear growth engine, are now being reevaluated as part of a broader pullback in AI-adjacent names.

Read more: Is an AI bubble forming? Market leaders and institutions weigh in

Amid the broad-based volatility in tech and the broader markets, gold continued its meteoric run this week to flirt with $5,600 an ounce before reversing, while silver and other industrial metals also retreated from recent highs.

Oil prices jumped, with Brent crude topping $70 a barrel after reports that President Donald Trump is considering additional strikes on Iran, adding a geopolitical layer to an already unsettled macro backdrop.