What happened?
Persistent Systems shares crashed over 6%, while heavyweight IT stocks, including Infosys, LTIMindtree, Coforge, TCS, Mphasis and HCL Tech, tumbled 4-6% each. Wipro and Tech Mahindra fell around 4%. The combined market value of Nifty IT index constituents plunged from Rs 31.75 lakh crore to Rs 30 lakh crore.
The selloff wasn’t limited to India. Wall Street’s tech-heavy Nasdaq fell 1.4% on Tuesday, with software stocks shedding approximately $300 billion in market value. Global giants took massive hits: London Stock Exchange Group Plc fell 13%, Thomson Reuters Corp. plunged 16%, CS Disco Inc. sank 12%, and Legalzoom.com Inc. plummeted 20%.
What triggered the panic in IT stocks?
On Friday, AI developer Anthropic launched plugins for its Claude Cowork agent designed to automate tasks across legal, sales, marketing and data analysis, professional services long seen as major beneficiaries of the AI era.
The move sparked what traders are now calling the “SaaSpocalypse.”
“We call it the ‘SaaSpocalypse,’ an apocalypse for software-as-a-service stocks,” said Jeffrey Favuzza, who works on the equity trading desk at Jefferies, Bloomberg reported. “Trading is very much ‘get me out’ style selling.”
On Tuesday, Anthropic released a new tool to automate legal work, which intensified investor flight from software exposure as fears mounted that artificial intelligence-driven disruptions would cause steep losses.
Why are investors so worried?
The core concern is that AI could fundamentally reshape the competitive landscape for software and IT services companies in ways that erode their profitability and market position.
“The fear with AI is that there’s more competition, more pricing pressure, and that their competitive moats have gotten shallower, meaning they could be easier to replace with AI,” said Thomas Shipp, head of equity research at LPL Financial, which has $2.4 trillion in brokerage and advisory assets. “The range of outcomes for their growth has gotten wider, which means it’s harder to assign fair valuations or see what looks cheap.”
Industries once seen as safe from AI disruption-such as legal services, data analytics and customer support-are now squarely in the crosshairs. If AI can automate these tasks, the massive IT services industry built around delivering such solutions could face existential challenges.
The selloff reflects a sharp shift in investor focus towards technology companies that may face intensifying competition and margin pressure as AI capabilities advance.
Those AI-related fears led Piper Sandler to downgrade software firms Adobe Inc, Freshworks Inc and Vertex Inc on Monday. “Our concern is that the seat-compression and vibe-coding narratives could set a ceiling on multiples,” analyst Billy Fitzsimmons wrote. Vibe coding refers to the use of AI to write software code.
The iShares Expanded Tech-Software Sector ETF fell 4.6% on Tuesday, marking its sixth consecutive day of declines. The ETF is coming off a 15% plunge in January, its worst monthly performance since 2008.
Anthropic sought to temper concerns by clarifying that its plugin does not provide legal advice. “AI-generated analysis should be reviewed by licensed attorneys before being relied upon for legal decisions,” the company said. Alongside the legal-focused tool, Anthropic also announced several open-source products aimed at automating a wide range of professional tasks, including sales and customer support.
Analysts say valuations of IT stocks remain elevated, with limited fundamental support for a sustained rally, leaving the sector particularly vulnerable to AI-driven disruption fears.
The selloff underscores a critical question for investors: are traditional software and IT services companies prepared for a world in which AI can perform many of the tasks they currently charge for? As competitive moats erode and pricing power comes under pressure, the outlook for these stocks remains uncertain.