Video: Software Under Pressure as AI Accelerates
Software stocks have sold off sharply as investors confront a reality we've been discussing since 2023: artificial intelligence (AI) is fundamentally reshaping software economics.
On February 4th, 2026, Alger portfolio manager Dr. Ankur Crawford addressed why this aggressive drawdown in software is happening. Software stocks have sold off sharply as investors confront a reality we've been discussing since 2023: artificial intelligence (AI) is fundamentally reshaping software economics.
Why have software stocks been under pressure recently?
Ankur Crawford: Software stocks had been the darlings of the market for 20 years. However, with artificial intelligence, the landscape has changed because when AI can write software, the cost to create that software plummets, and in particular, the margin structures are at risk. I believe the market is starting to question the terminal value of these businesses. And, I believe when the market begins to question that terminal value, the multiple compresses.
Should you avoid all of software entirely?
Ankur Crawford: I do think that there's opportunities setting up here because not all software is created equal. We highlighted some of this in a paper that we wrote, almost three years ago called AI and the Declining Cost to Create, where I believed there are going to be some software and point solutions that are going to be more affected. I believe, there's going to be large cap companies who are going to be affected by the margin structure, but they have some structural advantages as well in that they are able to use their distribution to grow their own business and to create other products. But there are software companies right now that we think are setting up to be really interesting buys, but they're not kind of your typical enterprise software that you might be considering that have gotten kind of slammed during this sell-off.
Has the AI investment theme changed?
Ankur Crawford: The fundamentals around artificial intelligence and the adoption rates are only accelerating. Google just reported and their backlog is at all-time highs and it's accelerating. Sundar Pichai just said they're going to be supply-constrained through the end of this year. And demand for AI and AI compute is just off the charts with adoption of these many different kinds of agents. And those agents are going to need an incredible amount of compute. So, I believe the fundamentals for artificial intelligence in terms of the usage have never been better.
Read more in her white paper,
AI and the Declining Cost to Create, where she anticipated disruption in the software industry.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of February 2026. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
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Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.
Companies involved in, or exposed to, AI-related businesses may have limited product lines, markets, financial resources or personnel as they face intense competition and potentially rapid product obsolescence, and many depend significantly on retaining and growing their consumer base. These companies may be substantially exposed to the market and business risks of other industries or sectors, and may be adversely affected by negative developments impacting those companies, industries or sectors, as well as by loss or impairment of intellectual property rights or misappropriation of their technology. Companies that utilize AI could face reputational harm, competitive harm, and legal liability, and/or an adverse effect on business operations as content, analyses, or recommendations that AI applications produce may be deficient, inaccurate, biased, misleading or incomplete, may lead to errors, and may be used in negligent or criminal ways. AI technology could face increasing regulatory scrutiny in the future, which may limit the development of this technology and impede the future growth. AI companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology.
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