The recent drawdown reflects a classic regime reset rather than a collapse in fundamentals.

What is driving the sell-off

The shock from new AI automation tools has accelerated fears of faster-than-expected disruption, compressing multiples across application software.

Valuations were still elevated after the October rally, leaving the sector vulnerable once growth durability was questioned.

Systematic de-risking and crowded positioning amplified the move, which explains why the Nasdaq 100 fell far less than pure-play software.

Will software continue to dip

Near term, volatility likely persists. Earnings revisions and guidance clarity will matter more than narratives.

However, a broad 26 percent drawdown already prices in material margin pressure and slower monetisation, which may prove overly pessimistic for quality names.

Buy-the-dip or not

This is not a blanket buy-the-dip.

Selective opportunities exist in companies with mission-critical workflows, strong pricing power, and clear AI cost offsets.

Lower-quality, tool-like software with weak moats may still face structural derating.

On panic selling

The speed suggests forced selling rather than a reassessment of long-term cash flows.

Historically, such episodes in software often create tiered entries, not V-shaped rebounds.

Bottom line This looks like a healthy but painful reset. Long-term investors should scale in selectively, while traders should respect that sentiment can stay negative longer than fundamentals justify.