During the "repricing" process of the technology sector, software stocks have become the most apparent pressure point. Continuous sell-offs have not only lowered valuations but also affected sentiment in the options market: more and more traders are willing to pay a higher premium to eliminate tail risks.
Sell-off Continues: Seven-Day Decline Drags Down Tech Sentiment
Data shows that a basket of software stocks tracked by Goldman Sachs has fallen for the seventh consecutive trading day, with a year-to-date decline expanding to approximately 19%; at the same time, the Nasdaq 100 index's performance year-to-date has also been dragged down to about -1.4%.
More broadly, Reuters notes that the S&P Software and Services Index has lost over $800 billion in market value over the past six trading days, as the market is re-evaluating whether the "subscription compounding" model can still stand in the face of the AI impact.
Options Signal More Stark: Protection Costs Return to Pre-Pandemic Levels
From a risk hedging perspective, the pricing of "downside insurance" is most telling: the cost of protecting against a 10% drop in Invesco QQQ Trust Series 1 ETF (QQQ.US), relative to bullish bets, has risen to its highest since March 2020; at the same time, IGV's implied volatility has also climbed to its highest level since the tariff disturbances last April, directly pushing up options premiums for the software sector.
Even Leaders Can’t Remain Unscathed: From "Growth Premium" to "Substitution Discount"
This round of adjustments has not spared "established core software assets" either. The market fears that AI tools might reshape the business models of productivity software, enterprise applications, and data services, resulting in double-digit pullbacks for Microsoft, Oracle, Salesforce, Palantir, and others this year.
Additionally, Adobe has been seen by some investors as a bellwether: with its valuation significantly compressed and a year-to-date decline of about 20%, there is speculation in the market on whether this same downward valuation channel will spread to more peers.
On the Funding Side: Hedge Funds Retreat, "No One Willing to Catch the Falling Knife"
More crucial is the positioning. According to Goldman Sachs prime brokerage data, software has been one of the most net-sold sub-sectors so far this year; net exposure to software has fallen to a historic low of about 4.2%, from around 7% at the start of the year and a historical high of 17.7%.
In this context, even if there is a "technical oversold" situation, buyers tend to wait and see first—because there is concern that this is not an ordinary correction but a re-pricing process of business models and profit pathways.
What to Watch Next: Earnings Validation and the "Stock-Picking Era"
The market is currently placing great importance on one point: Salesforce plans to release its financial report on February 26, and if performance and guidance can stabilize expectations, it may at least temporarily cool the sell-off.
Meanwhile, strategists' consensus is also changing—rather than betting on AI as a whole, it's better to identify companies that can genuinely use AI to widen their moat and those whose terminal valuations might be compressed by AI; the old "hardware vs. software" framework is being replaced by more finely differentiated structural differences.
