Software Stocks Face Unprecedented Selloff Amid AI Concerns
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 13h ago
0mins
Source: Yahoo Finance
- Software Stock Selloff: Wedbush analyst Dan Ives highlighted that Wall Street's selloff of software stocks like Salesforce, ServiceNow, and Microsoft is unprecedented, indicating severe investor skepticism about their relevance in the AI era, which could lead to declining performance over the next few years.
- Historic Decline: Ives noted that in his 25 years of experience, he has never witnessed such a structural selloff, with software companies being perceived as lacking space in the AI age, reflecting a significant drop in market confidence that could result in a loss of about 5% of customers.
- AI Impact Analysis: While Ives acknowledged that AI disrupts the software industry, he argued that considering software as obsolete is an extreme view, citing Palantir as an example of how software can still thrive in the AI era, demonstrating that there is still room for software to succeed.
- Market Reaction: The stock prices of Microsoft, Salesforce, and ServiceNow have dropped 16.75%, 25.87%, and 30.47% respectively over the past month, indicating a pessimistic outlook from investors regarding the future prospects of these companies and reflecting a waning confidence in the software sector.
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Analyst Views on MSFT
Wall Street analysts forecast MSFT stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for MSFT is 631.36 USD with a low forecast of 500.00 USD and a high forecast of 678.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
34 Analyst Rating
32 Buy
2 Hold
0 Sell
Strong Buy
Current: 393.670
Low
500.00
Averages
631.36
High
678.00
Current: 393.670
Low
500.00
Averages
631.36
High
678.00
About MSFT
Microsoft Corporation is a technology company that develops and supports software, services, devices, and solutions. Its Productivity and Business Processes segment consists of products and services in its portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. It comprises Microsoft 365 Commercial products and cloud services; Microsoft 365 Consumer products and cloud services; LinkedIn, and Dynamics products and cloud services. The Intelligent Cloud segment consists of its public, private, and hybrid server products and cloud services. It comprises server products and cloud services, including Azure, and enterprise and partner services, including Enterprise Support Services. Its More Personal Computing segment primarily comprises Windows and Devices, including Windows OEM licensing; Gaming, including Xbox hardware and Xbox content; Search and news advertising, comprising Bing and Copilot, Microsoft News, and Microsoft Edge.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Copilot License Sales Growth: As of Q2 2026, Microsoft 365's Copilot licenses reached 15 million, doubling year-over-year but representing only a 3.7% market penetration, indicating limited market uptake that could hinder future revenue growth.
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See More
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- Slow Copilot License Sales: As of the fiscal 2026 second quarter, only 15 million Copilot licenses for Microsoft 365 were sold, doubling year-over-year but representing a mere 3.7% market penetration, indicating insufficient market uptake that could hinder future revenue growth.
- Azure Growth Deceleration: Azure achieved a 39% year-over-year growth rate in the second quarter, exceeding Wall Street's expectations, yet slower than the previous quarter's 40%, with a staggering 110% year-over-year increase in order backlog to $625 billion due to data center capacity shortages, highlighting potential growth bottlenecks.
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- Cloud Growth Potential: Azure, Microsoft's cloud computing division, achieved a remarkable 39% revenue growth in Q2 2025, while the overall growth rate was 17%, underscoring the central role of cloud computing in the company's strategy.
- Competitive Advantage Analysis: Although Microsoft does not separately disclose Azure's profits, its operating margins are estimated to be between 25% and 35%, which may be lower than Microsoft's overall operating margin of 47%, compared to competitors AWS and Google Cloud.
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- Holdings Structure Differences: NZAC holds 729 stocks with 32% in technology, featuring major companies like Nvidia, Apple, and Microsoft, whereas IEFA tracks 2,589 stocks primarily in financial, industrial, and healthcare sectors, reflecting fundamental differences in investment strategies.
- Long-Term Performance Analysis: Although IEFA excels in the short term, NZAC's return over the past five years is approximately 10% higher, indicating its potential for long-term investment, particularly for investors focused on sustainability.
- Market Volatility Risks: Investors should be aware that IEFA exhibits higher volatility, especially during external market changes, which can significantly impact returns, making it crucial to stay informed about relevant international economic news.
See More
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- Expense Ratio Advantage: IEFA charges an annual expense ratio of 0.07%, significantly lower than NZAC's 0.12%, making IEFA more attractive in terms of cost efficiency, particularly for cost-conscious investors who can save more over the long term.
- Dividend Yield Difference: With a dividend yield of 3.4%, IEFA nearly doubles NZAC's 1.9%, creating a notable gap that positions IEFA as the preferred choice for income-focused investors, especially in the current low-interest-rate environment.
- Market Performance Comparison: Over the past year, IEFA outperformed NZAC in returns, yet NZAC's five-year performance exceeds IEFA by approximately 10%, indicating that while IEFA may excel in the short term, long-term investors might favor NZAC's stability.
- Portfolio Composition Differences: IEFA primarily invests in developed markets with 2,589 holdings, focusing on financial services, industrials, and healthcare, whereas NZAC targets climate-aligned companies with 729 stocks, 32% in technology, highlighting significant strategic differences in their investment approaches.
See More
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- Azure Growth Momentum: Microsoft's Azure cloud computing division achieved a remarkable 39% revenue growth in Q2 2025, highlighting its critical role in the company's overall 17% growth, indicating that cloud computing will continue to drive Microsoft's future development.
- Market Competition Analysis: Although Microsoft does not disclose Azure's financials separately, its operating margins are likely between 25% and 35%, compared to competitors Amazon AWS and Google Cloud's margins of 35% and 24%, respectively, which may exert some pressure on overall profitability.
- Investment Opportunity: Microsoft's expansion in the cloud computing sector presents a significant market opportunity, especially as demand for AI surges, leading enterprise clients to prefer renting data centers rather than building them, thus fueling Azure's rapid growth.
- Stock Market Performance Challenges: Despite Microsoft's stock price dropping 11% at the start of 2026, Azure's strong growth could help it outperform the market in the future, particularly as the broader market has only risen by 1%, providing Microsoft with a chance to regain its market position.
See More
