Software Stocks Enter Bear Market as AI Disruption Fears Trigger 11% ServiceNow Plunge

VADODARA, January 29, 2026 — Software stocks plunged deeper into a bear market Thursday. The iShares Expanded Tech-Software Sector ETF (IGV) dropped about 5%. This marks its biggest one-day decline since April 2025. The fund is now down 21% from its recent high. This daily crypto analysis reveals how AI disruption fears are overwhelming solid earnings. ServiceNow shares plunged more than 11% despite beating Q4 expectations.

Investigation: The AI-Driven Sell-Off Unfolds

According to CNBC market data, the sell-off intensified Thursday morning. The IGV ETF fell approximately 5%. This pushed the software industry officially into bear market territory. A bear market is defined by a 20% decline from recent highs. The IGV has now breached that threshold.

ServiceNow served as the focal point. The enterprise software maker reported Q4 earnings that topped Wall Street expectations. It also issued better-than-expected guidance. Despite this, its stock cratered over 11%. Morgan Stanley analysts labeled the report "Good, but not good enough." They noted stable growth likely fails to shift the narrative amid heightened investor skepticism.

The pressure spilled into megacap technology. Microsoft slid about 10%. This is on track for its steepest one-day drop since March 2020. The software giant reported a slowdown in cloud growth for its fiscal second quarter. It also issued softer-than-expected guidance on operating margin. The sell-off demonstrates a sector-wide liquidity grab.

Market Context & Historical Precedent

Historically, technology sectors face repricing during paradigm shifts. The dot-com bubble burst in 2000 serves as a key precedent. Then, valuations collapsed as internet adoption disrupted traditional business models. Today, AI presents a similar existential threat.

In contrast to past cycles, this sell-off is not driven by macroeconomic tightening alone. The Federal Reserve's latest statements on interest rates have been relatively stable. Instead, the fear is structural. Investors question whether AI competitors and automation tools will permanently erode demand for traditional software licenses.

Valuations once justified by steady subscription growth are being recast. This mirrors the crypto market's sensitivity to technological disruption. For instance, the rise of Ethereum's EIP-4844 proto-danksharding threatens older Layer 1 blockchains. Similarly, AI threatens the cash flow models of legacy software firms.

Related Developments: This fear-driven repricing echoes across asset classes. Recent market stress includes a $130 million liquidation surge in crypto futures. Meanwhile, some sectors defy the trend, like the DePIN market hitting a $10 billion valuation.

Technical Architecture & Price Action

Market structure suggests a breakdown below critical support. The IGV ETF has broken below its 50-day and 100-day moving averages. The next major support is the 200-day moving average near $380. A breach there would indicate a long-term trend reversal.

ServiceNow's price action created a massive Fair Value Gap (FVG) below $650. The stock gapped down on high volume. This indicates institutional selling pressure. The volume profile shows significant activity at lower prices. This confirms a shift in market sentiment.

Microsoft's 10% drop invalidated a key order block around $420. The stock now tests Fibonacci support at the 0.618 retracement level from its 2023 low. This level near $395 must hold to prevent further downside. The RSI on both stocks is deeply oversold below 30. This suggests a potential short-term bounce, but the trend remains bearish.

By The Numbers

Why It Matters

This sell-off matters for portfolio construction. Software was a Wall Street favorite for years. Its decline signals a broader risk reassessment. AI disruption could shrink long-term revenue potential for incumbents. This forces a recalculation of discounted cash flow models.

Institutional liquidity cycles are shifting. Capital is fleeing perceived vulnerable sectors. It may rotate into AI-native companies or other defensive assets. This repricing event creates a volume profile imbalance. That imbalance will take time to resolve.

The spill into megacap tech like Microsoft amplifies the impact. Microsoft is a heavyweight in major indices. Its drop pressures the entire market. This correlation risk is critical for multi-asset portfolios. The event the importance of technological due diligence, as outlined in resources like the SEC's guidance on market disclosures.

Expert Commentary

"Market sentiment has turned violently. Good earnings are no longer enough. Investors demand AI-proof business models. The sector is repricing for existential risk. This is a structural shift, not a cyclical downturn."

Market Outlook & Price Scenarios

Two data-backed scenarios emerge from current market structure.

• Bullish Invalidation Level: The IGV ETF must reclaim and hold above $420. This level represents the breakdown point and the 50-day moving average. A break above would suggest the AI fear is overblown and the sell-off was a liquidity grab.
• Bearish Invalidation Level: The IGV ETF must hold the $380 support. This is the 200-day moving average and a psychological level. A break below confirms a sustained bear market. It would open the door to a 30-40% total decline from the peak.

The 12-month outlook hinges on AI adoption curves. If AI integration erodes software margins faster than expected, valuations will compress further. Conversely, if incumbents successfully pivot, a rebound is possible. The 5-year horizon suggests a bifurcated sector: AI winners and legacy losers.