Software stock bulls are still making a lethal assumption

The future isn’t guaranteed to be bright and profitable, for any one person or company.

That could prove especially true for one-time untouchable software companies currently being battered by frequent AI advances from the likes of OpenAI (OPAI.PVT), Google (GOOG), and Anthropic (ANTH.PVT).

Software companies such as Workday (WDAY) and Salesforce (CRM) are facing existential crises to their stock prices — yet the Wall Street bulls still don’t appear to be getting the ultimate picture.

That could quickly be seen by how slow-moving they have been to cut forward earnings estimates. In fact, earnings estimates for software companies have trended higher despite seemingly daily evidence that AI will crush future profits!

Check out this new nugget from Goldman Sachs strategist Ben Snider.

Snider points out that software stocks — as measured by the iShares Expanded Tech Software Sector ETF (IGV) — have plunged 24% in the past three months, but two-year forward earnings for the stocks have risen by 5%. Likewise, the broader group of industries recently perceived to face the most risk from AI disruption — such as insurance brokers and advertisers — have experienced positive revisions to their 2026 EPS estimates.

While Wall Street analysts are normally a very optimistic bunch when it comes to modeling future earnings for companies they cover for clients, what they are doing here with software borders on non-sensical.

Price tends to be truth in markets, and the crashing stock prices of software companies suggests an ugly reveal in the years ahead due to the AI takeover.

The sooner Wall Street respects this and cuts estimates to more realistic levels, the sooner these stocks can bottom. Plain and simple.

“When we have a category [software] that just not too long ago were trading at about a 35 times PE multiple and now they’re down below 20 times, that’s a significant sell off. That’s the dark side of AI. And we need to pay attention to that because I do think there’s going to be other industries that are disrupted. And this is certainly a threat. And even if it isn’t a threat that plays out this year, it’s something investors need to prepare for and watch out,” Innovator Capital Management chief investment strategist Tim Urbanowicz told me on Yahoo Finance’s Opening Bid (video above).

Added Urbanowicz, “It’s going to scare investors … It’s not just going to be up and to the right like some people hope.”

Good to see someone on the Street getting it.

Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.