Why software stocks are selling off

• The software sector has lost approximately 30% of its value in the last three months due to fears of AI disruption.
• Concerns center on free or cheap AI coding tools, such as Anthropic's Claude, potentially displacing paid software applications and infrastructure.
• The long-term recurring revenue model, which previously cushioned software valuations and attracted M&A, is now under doubt, impacting private equity interest.
• Current AI excitement is primarily focused on companies like Alphabet (Google's Gemini) and memory chip manufacturers, rather than traditional software companies.

Software stocks are experiencing a significant sell-off, losing about 30% of their value in the past three months, driven by investor anxiety over AI-led disruption. The fear is that free or cheap AI coding tools will displace traditional paid software applications, questioning the long-term recurring revenue models that previously made these stocks attractive.