AI Fears Send US Software Stocks Into a Steep Decline as Anthropic’s Mythos Rattles Markets
US software stocks took a brutal beating on Thursday as renewed anxiety over artificial intelligence’s growing threat to the traditional software industry sent investors scrambling for the exits. The selloff was sharp, widespread, and a stark reminder of just how vulnerable the sector has become in the age of rapidly advancing AI.
The broader S&P 500 Software and Services Index slumped 25.5% for the year after shedding another 2.6% on Thursday alone. The selloff came just a day after optimism surrounding a potential US-Iran ceasefire had briefly lifted market sentiment and pushed those AI-related concerns to the background. But with that truce now looking shaky, the fear has come roaring back.
Steve Sosnick, chief market analyst at Interactive Brokers, put it plainly: “We’re getting back to being concerned about the prior software-specific concerns stemming from AI and private credit that are coming back to the fore.” His comments reflect a growing mood among market watchers who believe the software sector is caught in a structural storm that won’t blow over anytime soon.
The latest trigger came from Anthropic, which earlier this week unveiled a highly capable new AI model but deliberately chose not to release it to the public. The reason? The model, known as “Claude Mythos,” was found to be so powerful that it could potentially expose long-hidden cybersecurity vulnerabilities. Only a select group of roughly 40 major tech players — including Microsoft and Google — were granted access to it.
Anthropic’s Claude Mythos Exposes Cracks in Legacy Software
The restricted rollout of Mythos sent a chilling signal across the software industry. Michael O’Rourke, chief market strategist at JonesTrading, didn’t mince words about what it means: “If Mythos is that strong and that powerful and it’s exposing these vulnerabilities that have been around for years, it just shows the weakness of the current software that’s out there and that AI is still making incredible progress versus legacy software companies.”
That kind of commentary is striking fear into the hearts of investors who had previously viewed software stocks as a safe, high-growth corner of the market. What was once one of Wall Street’s most beloved trades has quickly transformed into a source of sleepless nights.
Michael Clarfeld, portfolio manager at ClearBridge Investments, acknowledged the uncertainty gripping the sector: “Whether AI spells the end of the software business is an open question. Given the unprecedented dynamism and speed of AI, we do not pretend to have the answers.”
Cybersecurity names bore some of the heaviest losses. Cloudflare, Okta, CrowdStrike, and SentinelOne each fell between 4.9% and 6.5% during Thursday’s session, a sign that even companies once seen as AI beneficiaries are now being swept up in the broader panic.
Zscaler was among the worst performers on the entire S&P 500, collapsing 8.8% after brokerage BTIG downgraded the stock from “buy” to “neutral.” Analysts at BTIG cited concerns over weakening demand and intensifying competition as key reasons for the downgrade. The stock is now trading at just 31.4 times expected 12-month earnings, hovering near the bottom of its historical valuation range and far below the 55.4x multiple it commanded at the start of the year, according to LSEG data.
The pain wasn’t limited to cybersecurity. Enterprise software giant Atlassian, HR platform Workday, creative software powerhouse Adobe, cloud enterprise leader Salesforce, and tax software company Intuit all fell between 3.7% and 6.8%. The selloff was broad-based, touching virtually every corner of the software market.
The anxiety is also starting to bleed into private credit markets, where lenders are increasingly uneasy about their exposure to technology companies whose future growth now looks far less certain. Carlyle Group saw its shares dip 1.5% after its flagship private-credit interval fund became the latest victim of a growing wave of redemptions.
The contagion spread beyond US shores as well. In Europe, enterprise software firm SAP Global, IT services group Capgemini, and banking software provider Temenos all fell between 3% and 7%, reflecting just how global the AI-driven software anxiety has become.
The broader picture that’s emerging is one of an industry at a crossroads. Artificial intelligence is advancing at a pace that many traditional software companies simply weren’t built to handle. As tools like Claude Mythos demonstrate capabilities that can expose systemic weaknesses in existing software infrastructure, investors are being forced to ask hard questions about which companies will survive and thrive — and which ones will be rendered obsolete before they even see it coming.