What Happened

The first week of February delivered what traders are calling „Software Armageddon.“ The iShares Expanded Tech-Software Sector ETF (IGV) dropped to nearly 30% below its 52-week high, officially entering bear market territory. Salesforce fell 4%, ServiceNow plunged 5%, and the broader software complex saw its worst stretch since the post-pandemic sell-off.

This isn’t a typical sector rotation. It’s a fundamental repricing of what enterprise software is worth in a world where AI can increasingly replicate, or replace, the functions these companies provide.

The AI Paradox

Here’s the irony: the very technology that propelled software stocks to record valuations is now threatening their business models. Large language models can generate code, automate customer service, create reports, and manage workflows, exactly the tasks that justified premium SaaS subscriptions.

This doesn’t mean all software is dead. Companies that successfully embed AI into their platforms (enhancing rather than competing with their products) will survive and potentially thrive. But the market is no longer willing to pay 15x revenue for growth assumptions that may not materialize.

Winners and Losers Diverge

While traditional software cratered, AI infrastructure stocks held firm or advanced. Vertiv surged 24% after posting a Q4 beat and strong 2026 guidance. Caterpillar, GE Vernova, and Eaton, all beneficiaries of the physical AI buildout (data centers, power infrastructure), posted gains.

The pattern is clear: the market is rewarding companies that supply the picks and shovels of the AI revolution, while punishing those whose moats may be eroded by it.

Warsh Nominated, Markets Absorb

In a significant policy development, President Trump nominated Kevin Warsh as the next Fed Chair on January 30. The former Fed Governor (2006 to 2011) is expected to succeed Powell in May. Markets reacted calmly: the Dollar rebounded and safe-haven metals pulled back, suggesting Wall Street views Warsh as credible and market-friendly rather than a political instrument.

The Fed held rates steady at 3.50 to 3.75% at its January meeting, with two dissenting votes favoring a cut. The labor market showed continued resilience heading into the year, though the January payrolls report (delayed by the government shutdown) was still pending at the time of writing.

What This Means for Portfolios

For investors, the software repricing presents both risk and opportunity. Stocks that have fallen 30–40% from highs may eventually become compelling value plays, but timing that entry requires conviction that the business model can adapt.

Swiss Angle

Swiss tech exposure is limited, but the implications extend to portfolio construction. The software sell-off reinforces the value of diversification, particularly toward sectors and geographies less dependent on multiple expansion. Swiss industrials, European quality names, and dividend-paying defensives offer exactly that kind of ballast.