Investors are abandoning software stocks as fears of AI-driven disruption intensify, with major players like Salesforce, Workday, and Snowflake all posting steep declines. The sector's woes deepened after Citrini Research warned that AI tools enabling "vibe coding" could erode demand for traditional software products, sending the iShares Expanded Tech-Software Sector ETF down 4.8% in a single day.

Despite solid earnings results from most software companies reporting this season, with 87% beating profit expectations, the market remains unconvinced. Salesforce shares have fallen 30% year-to-date and now trade at their lowest valuation ever at 13 times estimated earnings, while Workday has lost 39% and trades at record-low multiples. The S&P 500 software index is trading below 21 times forward earnings, its lowest level in over three years.

The pessimism extends beyond valuations to concerns about long-term viability. Wall Street strategists note that even positive earnings results may only delay the inevitable AI reckoning, with some predicting disruption could eliminate weaker players entirely. As AI tools from Anthropic, OpenAI, and others automate coding tasks, investors are questioning whether traditional software giants can maintain their growth trajectories in an increasingly automated development landscape.