Asian Software Stocks Drop on US AI Disruption Fears

Asian software stocks took a sharp fall on Wednesday morning after US markets closed lower on Tuesday. The drop hit companies across Japan, Australia, and Hong Kong futures, driven by fears that artificial intelligence will upend the software business. Wall Street's shift away from tech names rippled into Asia as investors questioned big bets on AI growth.

Background

For the past three years, AI has fueled a huge run in US stock markets. A group of big tech companies, often called the Magnificent Seven, led the charge with massive gains. Their stocks soared on promises of endless demand for AI tools and data centers. But lately, that story has faced pushback.

In recent weeks, investors have started to pull back. They worry that the huge spending on AI hardware and software might not pay off as fast as hoped. Companies like Nvidia and chip maker Advanced Micro Devices have seen their shares slide. AMD, for example, gave a sales forecast on Tuesday that fell short of what buyers expected, sending its stock down in after-hours trade.

This selloff started in US software stocks first. Shares in firms like Experian, London Stock Exchange Group, and Thomson Reuters dropped hard on Tuesday. The pain spread to the whole sector, with a Goldman Sachs index of US software stocks falling 6%—its worst day since April. The Nasdaq 100 index, heavy on tech, ended down 1.6%.

Not all US stocks suffered. Many in the S&P 500 actually rose. Shares in FedEx, Walmart, and other companies tied to the real economy did well. FedEx stretched a long winning streak, and Walmart crossed the $1 trillion mark in value. Oil prices rose too after US Navy action in the Arabian Sea. Even Bitcoin kept falling for a second day.

The change points to a bigger shift. Investors are moving money from high-flying growth stocks into steadier value plays. Value shares have beaten growth stocks by a wide margin in 2026 so far.

Key Details

Software Sector Hit Hardest

The first signs of trouble came in legal software and data services. Experian, London Stock Exchange Group, and Thomson Reuters saw big losses. From there, selling hit most software makers. An exchange-traded fund tracking tech software dropped about 4.5%.

Adobe took a major blow. Analysts cut its rating to neutral, pointing to risks from AI disruption. They said there is little proof Adobe can turn its AI work into real money. Its shares had already lost more than 20% in recent weeks, with Tuesday marking the worst single-day drop since March.

Other names felt the heat too. Nvidia fell for a third straight day. Microsoft marked a fifth day down, and Oracle a sixth. Netflix dropped 4% as its co-CEO faced questions in a Senate hearing on antitrust issues.

In Asia, the reaction was quick. Japanese markets opened lower, Australian stocks followed suit, and Hong Kong futures pointed down. Software makers led the declines as the US fears crossed the Pacific.

"Our sense is that markets are churning underneath the surface as worries over AI capital spending battle with hopes and dreams of broadening out as a result of an accelerating US economy." – Chris Senyek, strategist at Wolfe Research

Broader Market Shifts

US markets showed a split picture. Tech gave ground to cyclical stocks—those that do better when the economy picks up. Palantir reported strong results, which lifted spirits for AI at first. But that did not stop the overall tech slide.

The dollar rose a bit early Wednesday after falling overnight. US Treasuries held steady as central bank officials spoke. Richmond Fed President Tom Barkin noted that past rate cuts have helped jobs. Fed Governor Stephen Miran said weak price pressures mean more cuts could come this year.

Bitcoin's drop broke through key levels, raising talk of wider fallout. Investor Michael Burry warned of big value losses ahead.

What This Means

This selloff signals investors want proof that AI spending turns into profits. For years, the hype drove markets higher. Now, questions grow about the pace of change. Supply chains for AI infrastructure look stretched, with firms like Nvidia and OpenAI facing snags over funding and timelines.

Software companies face the biggest test. Once seen as leaders in AI, they now risk getting shaken up by the tech they embraced. Investors ask if firms can deliver returns on their AI bets or if costs will eat gains.

The rotation to other sectors could spread benefits. If money flows into industrials, retail, and shipping, it might lift the broader market. FedEx and Walmart gains show early signs. A stronger US economy could help, with recent manufacturing data showing a small uptick.

For Asia, the link to US tech runs deep. Local software firms rely on the same trends. A long AI pullback could weigh on regional growth stocks. But if the shift broadens participation, Asian markets might stabilize as US ones have.

Traders watch for more earnings reports. Will software names show real AI revenue? Can they cut costs amid labor shifts from pandemic hiring or AI tools? Low job numbers add to the puzzle—some see weakness, others efficiency gains.

Central banks stay in focus. Fed signals on rates could ease pressures or spark more moves. If inflation stays tame, lower rates might support stocks outside tech.

The software plunge marks a pause in the AI story, not the end. Markets test if promises match reality. Asia feels the waves, but a wider rally could follow if the economy holds firm.