The recent software and services industry plunge raises concerns about how the AI boom is reshaping markets. Software stocks globally sank on worries about AI tools disrupting the industry, triggering a selloff across continents. Investors fear a disruption to software company earnings and are considering a rotation into value sectors.

Software and services stocks are underperforming the S&P 500 by nearly 24 percentage points over three months, a near-record gap. The industry’s downturn contrasts with post-pandemic gains, similar to the dot-com crash of 2000-2001. Extreme readings may signal either capitulation selling or opportunities for contrarian investors.

The selloff has hit U.S. software stocks hard, with Oracle losing nearly 50% since late October. Other companies like ServiceNow and AppLovin also saw significant drops. The market is shifting away from tech, with the energy, materials, and consumer staples sectors thriving while tech struggles.

Despite a rebound in the broader market, uncertainty remains high for U.S. software stocks. Traders are cautious about further stock gyrations, with implied volatility still elevated. Short sellers are ready to capitalize on potential share price declines, with the IGV ETF’s short interest near its highest level ever.

Read more at Yahoo Finance: US software stocks tumble sparks concerns that AI trade is reshaping markets