The $1 Trillion Software Reckoning: When AI Eats Its Creators

$1 trillion. That's how much value the software industry has lost this year as Wall Street grapples with a fundamental question: Will artificial intelligence make business software obsolete?

The WisdomTree Cloud Computing Fund has plummeted nearly 20% in 2026, while hedge funds have raked in $24 billion shorting software stocks. The very technology that was supposed to revolutionize business is now facing an existential threat from an even more powerful force.

It's a classic case of creative destruction, but this time the creators are being devoured by their own digital offspring.

The Hardware Hangover

The pain isn't limited to software. Advanced Micro Devices crashed more than 17% yesterday after disappointing first-quarter guidance—its worst day since 2017. The tech-heavy Nasdaq Composite tumbled 1.5%, putting it on track for its worst week since November.

Meanwhile, Alphabet posted strong fourth-quarter results but spooked investors by announcing capital expenditures could more than double this year as it builds AI infrastructure. Shares dropped over 4% in premarket trading, even as the company beat expectations on both revenue and earnings.

The irony? Broadcom, which supplies AI chips to Google, surged 6% in extended trading. The AI boom is creating clear winners and losers, often within the same ecosystem.

Labor Market Tremors

The tech industry's struggles are rippling through employment. January layoffs hit their highest level for the month since 2009, surging over 200% from December, according to Challenger, Gray & Christmas. ADP's private payroll data also came in below expectations.

With key employment reports delayed due to the government shutdown, uncertainty is mounting about the broader labor market's health.

The Resistance Movement

Not everyone is panicking. Longtime tech analyst Fred Hickey brushed off concerns about the software selloff, while Citi's Tyler Radke suggested investors should use the pullback as a buying opportunity for select stocks.

Their argument? AI won't replace all software—it will transform it. Companies that can integrate AI capabilities or find niches where human judgment remains crucial could emerge stronger.

Beyond Silicon Valley

This software shakeup extends far beyond tech stocks. The Human Rights Campaign reported a 65% drop in Fortune 500 companies participating in its Corporate Equality Index, as conservative pressure campaigns target diversity initiatives. From 380 participants last year to just over 130 this year—a sign that corporate America is retreating from social positions amid political pressure.

Oil prices, meanwhile, jumped over 3% as President Trump warned Iran's Supreme Leader should be "very worried" ahead of nuclear negotiations. Even Bitcoin fell below the key $70,000 level for the first time since November 2024, reflecting broader risk-off sentiment.

Bitcoin fell below the key $70,000 level today for the first time since November 2024, another sign of investors shying away from risk-on trades.