A widespread selloff in software stocks is disrupting merger and acquisition activity as well as initial public offerings in the technology sector, with market volatility making reliable valuations difficult to establish, according to approximately a dozen financial advisers and dealmakers interviewed by Reuters.

Software stock indices have declined about 25% from their October peaks, creating uncertainty for companies and investors looking to complete transactions. The selloff has been driven primarily by concerns about artificial intelligence disruption across the software industry, following the release of new AI tools that could potentially compete with existing software products.

Market Impact and Affected Companies

Major software companies have been among the hardest hit during the recent market turbulence. Microsoft, Palo Alto Networks, ServiceNow, CrowdStrike Holdings, and Datadog have all experienced significant stock price declines. The volatility has extended beyond pure software companies to affect financial services firms, with S&P Global forecasting 2026 profits below Wall Street expectations due to AI-related concerns, pushing its shares to their lowest levels in more than two years.

The selloff has also impacted brokerages and other financial firms that had been benefiting from months of AI-related market enthusiasm. Goldman Sachs CEO David Solomon characterized the software selloff as "too broad," suggesting the market reaction may have been excessive relative to actual business fundamentals.

Deal Activity and Investor Response

Despite the institutional concern about valuations and deal timing, retail investors have been purchasing software and technology stocks following the heavy selloff, largely dismissing the disruption worries. Some strategists view the AI-driven fears as creating potential buying opportunities in US software stocks.

The current market conditions present challenges for companies planning IPOs or seeking acquisition partners, as potential buyers remain cautious about committing to transactions when stock prices remain volatile. Financial advisers report that the uncertainty around AI's long-term impact on software business models is contributing to a more cautious approach to deal-making across the sector.