As software stocks crater on AI disruption fears, Wedbush analyst Dan Ives is taking a contrarian stance on the selloff. Ives says the current selloff is “the worst he’s witnessed in 25 years” but believes investors are making a critical mistake by treating enterprise software as obsolete in the AI era.
The numbers tell a brutal story. Salesforce (NYSE:CRM) has plunged 28% year-to-date to $189.72, while ServiceNow (NYSE:NOW) has dropped 30.1% in 2026 to $107.08. Even Microsoft (NASDAQ:MSFT | MSFT Price Prediction) hasn’t been spared, falling 17% this year.
Salesforce (CRM): Valuation Compression Amid AI Fears
Ives’ argument hinges on a fundamental belief that “artificial intelligence will complement existing software models rather than displace them.” He’s not alone. Morgan Stanley (NYSE:MS) recently argued that “generative AI could add approximately $400 billion to the broader Enterprise Software Total Addressable Market by 2028” and noted that software multiples have compressed 33% since October 2025.
Goldman Sachs (NYSE:GS) CEO David Solomon echoed this view, calling the “AI-driven software selloff overdone” and suggesting many companies will adapt successfully. The valuation case is compelling. Salesforce now trades at just 14.4x forward earnings despite posting $900 million in Data Cloud and AI ARR, growing 120% year-over-year.
Salesforce CEO Marc Benioff tried to counter the negative narrative on the company’s recent earnings call, warning investors to “beware of the false agent” and claiming Salesforce is “light years ahead of other providers.” The company’s Agentforce platform with 3,000+ paid customers demonstrates its efforts to integrate AI into its existing platform.
ServiceNow (NOW): Strong Results Can’t Stop the Selloff
The fear gripping software investors isn’t irrational. OpenAI’s Frontier platform and the rise of AI agents threaten to commoditize what enterprise software companies have spent decades building. ServiceNow reported strong Q3 revenue of $3.41 billion, up 22% year-over-year, yet the stock still cratered.
The market is pricing in a world where traditional SaaS models become obsolete. Even positive results can’t overcome that narrative. ServiceNow’s aggressive acquisitions suggest the company isn’t sitting still in the face of AI disruption. One area of expansion is security. Right now, the market has been selling off companies in security, but the narrative could flip quickly if there’s a series of major attacks this year using swarms of agents.
Microsoft (MSFT): Even the AI Leader Isn’t Immune
Microsoft’s 17% decline this year shows that even companies at the forefront of AI development aren’t immune to the sector-wide selloff. The software giant has been a leader in integrating AI across its product suite, yet investor fears about the broader software market have weighed on the stock.
Microsoft is stuck between a rock and a hard place. Investors sold off the stock for forward Azure projections (about 38% growth) that came in below expectations. It’s not that demand isn’t there, but Microsoft doesn’t have any more compute capacity as it needs to dedicate portions of their infrastructure to internal projects.
That’s the right call. By renting more capacity to Anthropic or OpenAI, Microsoft is gaining revenue today to give more capacity to the companies disrupting it. Microsoft needs far better AI capabilities in its own software if it wants to defend revenue growth in core franchises like its Office products.
The Verdict
Ives believes the selloff represents a significant disconnect between market pricing and fundamental value. The dot-com crash, the 2008 financial crisis, and the 2022 tech selloff all saw quality names trade at depressed valuations during periods of sector panic. But this time the technology shift is real and accelerating.
For Ives’ thesis to prove correct, AI needs to expand the software market rather than cannibalize it. The bull case rests on whether enterprise software companies can successfully integrate AI into their platforms rather than being displaced by it. The bear case assumes AI agents will bypass traditional SaaS entirely, making current valuations still too high.
I’d expect to see a broader separation as the year progresses. There could be a world where Salesforce continues selling off while the market’s sentiment of ServiceNow or other software verticals changes.
Wall Street currently projects Microsoft will hit $18.85 in earnings next year. That means the company is currently trading at about 21X earnings right now. At this point, I’m a buyer, but a bit more moderate. The company will need to endure more negative sentiment as it balances serving compute to internal projects and renting it out via Azure.
However, if negative sentiment continued and Microsoft slipped into the low $300s, putting it at a forward P/E of closer to the mid-teens, I would move from a moderate buyer to buying the company hand over fist.
