What Happened?
A number of stocks fell in the afternoon session after a confluence of high-profile AI talent departures from Alphabet, and a regulatory overhang pulled the entire communication-services and software complex lower.
Alphabet fell roughly 6%. Microsoft slipped as well. When the two largest software-adjacent megacaps decline together, the sector indices follow mechanically given their index weight. But the deeper driver was the market's persistent fear that AI agents would erode the subscription model that underpins traditional enterprise software economics. That fear had been compounding all year. Salesforce trades around $152, down roughly 43% year-to-date and near its 52-week low. Adobe fell approximately 49% over the past year and has not traded this cheap on earnings in over a decade.
The previous week's Accenture collapse, a near-20% single-day drop after the consulting giant cut its growth outlook and explicitly cited AI compressing demand for traditional IT services acted as a fresh confirmation of the thesis. If the largest IT services firm in the world is signaling that AI is eating its billable hours, investors extend the same logic to the software vendors whose products those hours configure.
The counterargument is that the selling has become indiscriminate. Salesforce is a Rule-of-40 company retiring 10% of its shares through a $25 billion buyback, carrying the largest AI revenue line in the category, and it is acquiring usage-based billing platforms like m3ter precisely to monetize AI agent actions rather than seats. Monness upgraded the stock to Buy the previous week on valuation. The market is pricing the cannibalization as if it already happened; the income statements might be indicating otherwise. But until these companies can prove that AI revenue scales faster than it erodes the legacy subscription base, software might remain in the penalty box even on days when the rest of tech (especially chip stocks) is celebrating.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Vertical Software company Bentley Systems (NASDAQ: BSY) fell 2.6%. Is now the time to buy Bentley Systems? Access our full analysis report here, it’s free.
- Data Analytics company Amplitude (NASDAQ: AMPL) fell 1.5%. Is now the time to buy Amplitude? Access our full analysis report here, it’s free.
- Identity Management company Okta (NASDAQ: OKTA) fell 3.1%. Is now the time to buy Okta? Access our full analysis report here, it’s free.
Zooming In On Okta (OKTA)
Okta’s shares are quite volatile and have had 19 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 19 days ago when the stock dropped 7.2% on the news that Mizuho downgraded the stock to Neutral from Outperform due to valuation concerns following a significant surge in the share price.
The downgrade came despite Mizuho raising its price target on the stock to $125 from $110. The firm explained that with shares up 49% in the previous week and 62% year-to-date, the valuation appeared full. Mizuho added that it was not yet convinced Okta could significantly re-accelerate growth in the near-to-medium term. Analyst rating changes often lead to stock price adjustments, as they can influence investor sentiment about a company's future prospects.
Okta is up 38.6% since the beginning of the year, but at $115.92 per share, it is still trading 17.1% below its 52-week high of $139.79 from May 2026. Despite the year-to-date gain, investors who bought $1,000 worth of Okta’s shares 5 years ago would now be looking at only $480.28.
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