Wall Street continues to sell off software stocks due to concerns about disruptive impacts from AI, yet non-professional investors are bucking the trend by aggressively purchasing these shares.
Data compiled by JPMorgan indicates that trading activity by retail investors in the battered software sector is approaching historically high levels, even though the S&P Composite 1500 Software and Services Sub-index has fallen nearly 20% since the start of the year.
JPMorgan strategist Arun Jain stated that despite "persistent cracks appearing in some areas of the market," retail investors continue to "provide support for the software sector."
Microsoft (MSFT) was the most favored stock among retail investors, both last week and year-to-date. Other companies attracting significant interest from individual traders include ServiceNow (NOW) and AppLovin (APP).
This buying behavior by retail investors is often described using the acronym "YOLO" (You Only Live Once). This latest surge in activity coincides with software stocks facing pressure following a series of new AI product announcements. Wall Street fears these AI products could potentially replace services offered by companies like Salesforce (CRM) and Adobe (ADBE).
"Panic trading" intensified earlier this week after a little-known firm, Citrini Research, published a report suggesting AI could trigger widespread economic disruption. Nassim Taleb, author of "The Black Swan," also warned that the software industry might face a wave of bankruptcies.
However, Marshall Front, Chief Investment Officer at Front Barnett Associates, offered a contrasting view: "In our view, the sell-off in software stocks is clearly overdone, and current valuation levels are attractive."
Fears related to AI also do not appear to be deterring ordinary retail investors, who continue to buy during each round of price declines. According to data from VandaTrack Research, on Thursday, NVIDIA (NVDA) closed down 5.5%, marking its worst performance since April 2025, yet it attracted a record proportion of retail investors buying the dip.
Significant dip-buying activity was also observed in Broadcom (AVGO), the iShares Expanded Tech-Software Sector ETF, and the iShares Semiconductor ETF. Vanda Research noted that retail investors were on track to record their largest single-day buying volume in months, purchasing $336 million worth of individual stocks within the first 80 minutes of trading. The IGV ETF ultimately closed up 2.2%.
Analysts suggest that in an environment almost entirely driven by AI-related news, where even minor developments can trigger market reactions, retail investors might be rediscovering undervalued opportunities.
Walter Todd, Chief Investment Officer at Greenwood Capital Management, commented, "Given the sell-off we've witnessed, and its relatively indiscriminate nature, I don't think it's a bad time to look for value now."
Todd added that while the long-term outlook for software companies remains uncertain, placing short-term bets might be easier. "These stocks have been sold off aggressively for several weeks, actually for several months," he said. "Therefore, it's easy to anticipate at least a short-term rebound."
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