Software’s Slow Bleed

January’s over. The market, mostly quiet. A few pockets of trouble, though. And the software sector? It’s not just cooling off; it’s starting to look like a slow bleed. They used to say these companies were eating the world. Now? They seem to be chewing each other up.

Microsoft, Palantir, ServiceNow – the big names are all down. The iShares Expanded Tech-Software Sector ETF (IGV) took a 16% hit last month, a final 7% tumble over the last two days after earnings reports from Microsoft, ServiceNow, and SAP. Numbers don’t lie, but they rarely tell the whole story. This felt less like a correction, more like a sigh.

The Static in the Machine

The books still look okay, on the surface. Growth numbers are solid enough. Guidance isn’t screaming disaster. But that’s the problem with these things. They’re good until they aren’t. The chatter online points to AI disruption. Investors are starting to think these software giants might be replaced, either by in-house solutions or by some nimble start-up with a better algorithm. It’s a reasonable fear, in a world that rewards the new and forgets the old with unsettling speed.

Valuation, naturally, plays a part. These stocks were already expensive. Frothy, even. Air always comes out eventually. ServiceNow, for instance, is down 50% from its peak, yet still trades at a P/E of 70. That’s not a correction; it’s a slow, expensive descent. Palantir’s down nearly 30%, but still clings to a P/S of 99 and a P/E of 353. It’s like watching a gilded barge slowly taking on water.

Compare that to the semiconductor stocks. Cheaper, growing faster, and actually driving this AI boom. Nvidia trades at a P/E of 47 and just reported 62% revenue growth. Simple arithmetic, really. But simplicity rarely survives in the corporate world.

What Now?

Predicting the market is a fool’s game. Sentiment shifts faster than the weather. These fears of disruption? They might be valid, in the long run. The multiple compression feels…reasonable. ServiceNow isn’t exactly a bargain even after its fall. But disruption doesn’t happen overnight. The bigger companies have defenses. And there’s no sign of growth suddenly drying up. Not yet, anyway.

If you’re looking for opportunity, stick to the highest quality. The companies with resilient business models and actual, reliable GAAP earnings. Microsoft. It’s down 23% from its peak, and with the strength of Azure, it looks like the least bad option. It’s not a soaring recommendation, mind you. Just a recognition that in a world of illusions, some things are merely less illusory than others. It’s a solid enough boat, even if the sea is getting rougher.

2026-01-31 08:22

The Static in the Machine

What Now?

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