Software Stocks Panic Selling -> "Death Of Software" or Violent "Re-Pricing"?

I think we might want to go to the fundamentals, we saw market panic selling on software stocks, but are we seeing individuals and companies around the world stop using these softwares?

It definitely feels like the sky is falling when you see red across the board for eight straight sessions, but the answer whether the world is stopping to use these softwares is No, the world is not stopping the use of software.

In fact, Gartner actually projects that software spending will grow by 14.7% in 2026, reaching over $1.4 trillion. What you are seeing is not a "death of software" but a violent "re-pricing" of it.

Here is the breakdown of why this is happening and what might finally stop the bleeding.

Why the Panic Selling? (The "Disruption" Fear)

The current panic was largely triggered in early February 2026 by a "one-two punch" from the AI sector:

The "Claude Cowork" Spark: Anthropic released a new AI tool (Claude Cowork) capable of automating complex business tasks like legal reviews and contract drafting. This shifted the narrative from "AI helps software companies" to "AI will replace software companies."

The "Adobe Effect": Investors are looking at Adobe’s 20% year-to-date drop as a warning sign. If AI can generate images and code, do we still need to pay for expensive "legacy" SaaS subscriptions? This fear has caused a $300 billion wipeout in market value across firms like Salesforce, Oracle, and Microsoft.

The Capital Rotation: Money is not just disappearing; it’s moving. Investors are pulling money out of "overvalued" tech and dumping it into "Real Assets" like energy, materials, and gold, which are actually performing quite well right now.

What Could Stop the Panic? (The Catalysts)

Panic selling usually stops when the "selling pressure" exhausts itself or a new piece of data proves the fear was exaggerated. Watch for these:

Earnings Stability: If major software players report upcoming quarterly earnings that show stable retention rates (meaning customers are not actually canceling their subscriptions), the "AI victim" narrative will lose steam.

Federal Reserve Clarity: Jerome Powell’s term ends in May 2026. If a successor is named who is seen as market-friendly or "dovish," it could provide the liquidity needed to stabilize tech valuations.

The "Bottoming" Signal: Historically, when implied volatility reaches extreme highs (as it has recently for tech ETFs like IGV), it often signals that the "weak hands" have already sold, and professional "dip buyers" are about to step in.

What Could Make it Worse? (The Risks)

The Jobs Report: There are growing signs of a weakening labor market. If upcoming jobs data shows a spike in unemployment, investors will fear a broader recession, which leads to "sell everything" mode.

Hardware Bottlenecks: A current global memory (DRAM/NAND) shortage is making AI hardware more expensive. If software companies can't afford the hardware to run their new AI tools, their growth will stall.

Bitcoin "Death Spiral": Some analysts, including Michael Burry, have warned that if Bitcoin (which has recently tumbled) continues to fall, it could drag down software companies that have exposure to digital assets or crypto-payments.

Summary Table: Software in 2026

The bottom line: We are in a "valuation reset." The world is not using less software; it's just deciding it does not want to pay "infinity prices" for it anymore.

As of early February 2026, $Microsoft(MSFT)$ is at the center of the "software panic" you mentioned. It is a classic case of strong fundamentals colliding with weak market sentiment.

While the stock has slid about 14% following its January 28 earnings report, analysts remain overwhelmingly bullish, suggesting that the current sell-off is a valuation correction rather than a failure of the business.

The Performance Paradox

Microsoft actually posted "blockbuster" numbers for its Fiscal Q2 2026, yet the stock dropped. Here is why:

The "Beat": Revenue hit $81.3 billion (up 17% YoY), and Earnings Per Share (EPS) came in at $4.14, beating expectations.

The "Cloud Concern": Even though Azure grew 39%, investors were spooked by "capacity constraints." Essentially, Microsoft has too much demand for AI and not enough hardware/data centers to fulfill it yet.

The "Capex" Fear: Microsoft spent $37.5 billion on capital expenditures (mostly AI chips and infrastructure) this quarter alone—a 66% increase. Some investors fear this massive spending will eat into profit margins before the revenue fully materializes.

Analyst Ratings & Price Targets

Despite the market panic, Wall Street is largely holding its ground. Most analysts view this as a "buy the dip" opportunity.

Key Voices:

• Wedbush (Dan Ives): Remains highly bullish, viewing the AI spending as a necessary foundation for the "AI Revolution."

• Morningstar: Notes that the stock is the cheapest it has been in three years relative to forward earnings.

• Goldman Sachs/Citi: Most have maintained "Buy" ratings but slightly trimmed price targets (e.g., from $630 down to $600) to account for higher near-term costs.

Critical Technical Levels

Microsoft’s stock has broken below its 50-day and 200-day moving averages, which is why the selling feels so aggressive—it’s "algorithmic" panic.

• Support Level: Analysts are watching the $390–$400 range. If it holds here, it could form a base for recovery.

• Resistance: It needs to clear $450 to prove the downtrend is over.

The Verdict

The world is not using less Microsoft; if anything, the "capacity constraint" issue proves the world wants more than Microsoft can currently provide. The "panic" is about the cost of growth, not the lack of growth.

In the next section, we would take a look comparing Microsoft (MSFT) to its peers Alphabet (GOOGL) and Oracle (ORCL) during this February 2026 market turbulence, the definition of "cheaper" depends on whether we look at the raw price tag (P/E ratio) or the quality of the business (cash flow and debt).

Right now, the market is punishing companies with high capital expenditures (CapEx), making for a very interesting valuation gap.

Valuation Metrics Comparison (February 2026)

Who is Technically "Cheaper"?

The Value Play: $Oracle(ORCL)$

Technically, Oracle is the cheapest based on its Forward P/E ratio of ~21x. However, this lower price comes with significant "technical baggage."

• The "Debt" Problem: To fund its AI expansion and data centers, Oracle is raising nearly $50 billion in new debt/equity this year.

• The Risk: Unlike MSFT or GOOGL, Oracle’s massive spending has pushed its free cash flow into negative territory recently. Investors are pricing it lower because it's a "higher risk" infrastructure play.

The Growth/Value Hybrid: $Alphabet(GOOGL)$

Alphabet has actually become more expensive than Microsoft on a forward P/E basis recently (~28x-30x).

• The Edge: Alphabet owns its own custom AI chips (TPUs), which gives it a structural cost advantage.

• The Sentiment: While the stock took a hit on news of doubling its CapEx to $180B+, many analysts believe its "complete AI tech stack" (Gemini + TPUs + Search) makes it a safer long-term bet than pure software players.

The "Quality" Discount: Microsoft (MSFT)

Microsoft currently sits in a "Goldilocks" zone. It is trading at a lower P/E than Alphabet but maintains better cash flow than Oracle.

• The Opportunity: MSFT is currently trading at roughly 26x forward earnings, which is a significant discount compared to its 5-year average of ~32x.

• The "Why": The market is worried about its reliance on OpenAI and the high cost of Azure expansion. However, with a $400B commercial backlog, it has the most "visible" future revenue of the three.

Analyst Sentiment Summary

MSFT: Analysts see the most "unlocked value" here. With a target price near $630, the implied upside is almost 50% from current lows.

GOOGL: Viewed as the "AI winner" in terms of technology, but the stock is already up significantly over the last 12 months, leaving less "easy money" on the table.

ORCL: Analysts are split. Some see a 100% upside if they can fulfill their massive $523B backlog; others fear the $25B+ debt mountain they've built to get there.

If we want the lowest absolute valuation, Oracle is the winner. If we want the best "quality for the price" during a panic, Microsoft is technically the "cheaper" deal because we are getting a massive, cash-rich moat at a historically low valuation multiple.

In the following section we feel that analyzing the Short Interest of these above stocks might give us a fascinating look at whether the "smart money" is actually betting on a total collapse or just waiting for a better entry point.

As of early February 2026, the data shows that traders are not aggressively shorting these stocks. In fact, the short interest is remarkably low given the scale of the recent sell-off. This suggests that the "panic" is mostly driven by long-term investors selling or "trimming" positions, rather than a predatory attack by short-sellers.

Short Interest Snapshot (Feb 2026)

What This Tells Us

• MSFT & GOOGL (The "Untouchables"): A short interest below 1% is effectively negligible. It means that for every 100 shares available, fewer than 1 is being used to bet on a price drop. Most traders realize that betting against Microsoft or Google is a "widow-maker" trade—even in a panic, these companies can announce a buyback or a massive new contract that wipes out short-sellers instantly.

• The Oracle Exception: Oracle has double the short interest of the others. This is because of their $50 billion debt and equity raise announced this month. Short-sellers are betting that the "At-The-Market" (ATM) stock offering will dilute current shareholders and push the price down further as Oracle floods the market with new shares to pay for their data centers.

The "Shadow" Shorting: Options Activity

While the actual "shorting" of shares is low, the real betting is happening in the Options Market:

• Put Buying: There has been a surge in "Put" options for Microsoft with a strike price of $410. This shows that traders expect the price to hover or dip slightly lower in the next 30 days, but they aren't willing to sell the stock outright.

• The "Bullish" Short: Interestingly, value investors are actually shorting Puts (a bullish move). They are effectively saying: "I will bet the stock does not fall below $410, and if it does, I am happy to be forced to buy it at that cheap price."

What would trigger a "Short Squeeze"?

Since short interest is so low, we are unlikely to see a massive "short squeeze" (like GameStop). However, if Oracle or Microsoft reports even a moderately good update on their AI hardware supply, the small number of shorts will likely cover their positions quickly, leading to a "relief rally" of 3-5% in a single day.

Summary Verdict

Traders are fearful, but they aren't brave enough to bet against these giants. The low short interest is actually a "contrarian" bullish signal—it shows the market isn't fundamentally "broken," it's just "recalculating."

Summary

In February 2026, the software sector is weathering a historic "valuation reset" rather than a permanent decline. Here is the summary of our discussion:

The "Claude Crash" and Market Panic

The panic was ignited by Anthropic’s launch of Claude Cowork, an AI tool capable of automating complex enterprise tasks (like legal and data analysis). This shifted the narrative from AI being a "helper" for software companies to AI being an "existential threat" that could replace them entirely. High-profile names like Microsoft, Salesforce, and Adobe saw a collective $300 billion wipeout in market value as investors feared their business models were becoming obsolete.

Is the World Quitting Software?

No. While stock prices are falling, actual software usage and spending are projected to grow by nearly 15% in 2026. The current selling is a "valuation correction"—the market is no longer willing to pay "infinity prices" for growth. Furthermore, Microsoft’s "capacity constraints" actually prove that demand is so high they literally cannot build data centers fast enough to keep up.

Key Catalysts for Recovery

The panic is likely to stop when "selling exhaustion" sets in. Potential turning points include:

• Earnings Stability: If upcoming reports show that corporate customers are not canceling their SaaS subscriptions, the "disruption" fear will cool.

• Fed Transition: The end of Jerome Powell’s term in May 2026 provides a window for a new, "dovish" leader to stabilize tech markets.

• Technical Support: Analysts are watching the $390–$400 level for Microsoft; if it holds, it could signal a market bottom.

Risks of Further Selling

The panic could deepen if:

• Macro Weakness: A spike in unemployment could trigger a broader recessionary sell-off.

• Liquidity Squeeze: Massive capital expenditures (like Microsoft spending $140B+) could lead to a "cash crunch" if AI revenues take longer than expected to materialize.

• Bitcoin Volatility: Continued crashes in digital assets often act as a lead indicator for high-beta software stocks.

Appreciate if you could share your thoughts in the comment section whether you think violent “re-pricing” might be mitigated by better AI results from the big tech and also a stronger labour market might revise a broader recessionary sell-off.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.