The software sector is getting absolutely hammered in 2026, and if you're wondering whether this is a buying opportunity or the start of something worse, you're not alone.

Here are the numbers that should make you nervous: Microsoft (MSFT) is down 14% year-to-date. Salesforce (CRM) has dropped 24%. Oracle (ORCL) is off 21%. Adobe (ADBE) and Snowflake (SNOW) are both down around 20%. These aren't speculative growth stocks—these are the pillars of enterprise software, companies that were supposed to be safe.

So what's happening? The market is asking a question it should have asked two years ago: does AI complement these companies, or does it replace them?

Think about it. Software has always been about automation—taking manual processes and turning them into code. But AI doesn't just automate processes. It writes the code. If AI can build custom workflows, generate reports, and integrate systems without needing a SaaS subscription, what exactly are you paying Salesforce for?

This isn't hypothetical. Companies are already experimenting with AI agents that can do what used to require a $200-per-seat CRM platform. The moat that software companies relied on—switching costs, integrations, data lock-in—starts to erode when AI can replicate functionality in hours instead of quarters.

Not every software company is equally vulnerable. Microsoft owns a massive stake in OpenAI and runs the cloud infrastructure that powers AI workloads. If AI kills traditional software, Microsoft collects rent either way. That's a hedge. Salesforce, on the other hand, is trying to bolt AI features onto a platform that's fundamentally about manual data entry. Good luck with that.

Then there's the valuation argument. At 14% down, is MSFT a bargain? Maybe. But remember, Microsoft is still trading at a premium because of AI expectations. If those expectations don't materialize—or worse, if AI revenue cannibalizes Office and Azure margins—this isn't a dip. It's a repricing.

Wall Street analysts are split. The bulls say this is panic selling, that software companies will adapt and integrate AI into their platforms. The bears say this is a structural shift, not a cyclical pullback, and that software-as-a-service is about to get disrupted the same way it disrupted on-premise software 15 years ago.

Here's my take: if you can't explain how a software company survives in a world where AI writes code and builds workflows, you shouldn't own it. That means understanding whether their product is a tool or a platform. Tools get replaced. Platforms might survive if they own the data and the ecosystem.

So is this a buying opportunity? For Microsoft and maybe Oracle, it's worth watching. For the rest? This might not be the bottom. When blue-chip software stocks start trading like speculative growth names, that's not a sale—it's a warning.

If you're tempted to catch this falling knife, ask yourself: are you buying because the fundamentals are strong, or because the price used to be higher? Only one of those is a reason to invest.