Software stocks have experienced a sharp decline in the last month, particularly in the final two days of January. The sell-off seems to be driven by fears of AI disruption, with major companies like Microsoft, Palantir, and ServiceNow taking significant hits. The software sector’s valuation and concerns about future enterprise software trends are also contributing to the downward trend.

Despite the sell-off, many software companies continue to report solid growth numbers and guidance. The sector’s historically high valuations are also prompting a correction, with some stocks down significantly from their peaks. In contrast, semiconductor stocks are cheaper and growing faster, driving the AI boom. Investors are advised to focus on high-quality software stocks like Microsoft for long-term growth opportunities.

Investors should consider the long-term outlook for software stocks amid AI disruption fears. While the sector may face challenges, established companies with strong business models like Microsoft are likely to remain resilient. The sell-off presents an opportunity to invest in quality stocks at a lower price point. The Motley Fool’s Stock Advisor team has identified the 10 best stocks to buy now, offering potential for significant returns.

Read more at Nasdaq: Software Stocks Are Getting Socked. Is It a Red Flag Or a Buying Opportunity?