Software stocks have plunged into bear-market territory, with the iShares Expanded Tech-Software Sector ETF down roughly 30% from its 52-week high. Investor fears that rapid AI advancements could disrupt traditional software giants and SaaS models have triggered a broad selloff, pushing valuations well below historical norms.

Despite the pessimism, select software names fully embracing AI could offer compelling long-term opportunities. Salesforce, down 42% from its peak, trades at just 14.4 times forward earnings while analysts see nearly 71% upside. The company's Agentforce platform allows customers to build AI-powered agents within its ecosystem, positioning it to leverage rather than be disrupted by AI. Dropbox, with a forward P/E of just 8, is transitioning from traditional storage to AI-powered productivity tools like Dropbox Dash and Dropbox AI.

Adobe, down 43% from its high, faces generative AI competition but has aggressively integrated AI through Adobe Firefly across Photoshop, Illustrator, and Premiere Pro. The stock's forward P/E of 10 suggests the selloff may have overshot reality. While AI disruption fears have reset valuations across the sector, these oversold software stocks now trade at levels that could reward patient investors who believe in their AI integration strategies.