Software Sector Faces Worst Drawdown in a Decade
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Feb 04 2026
0mins
Should l Buy AI?
Source: Benzinga
- Severe Market Drawdown: The iShares Expanded Tech-Software Sector ETF (NYSE:IGV) has fallen for seven consecutive sessions, resulting in a 16% drop, marking the worst performance since the COVID panic in 2020, indicating immense pressure on the software sector.
- Widespread Negative Returns: Year to date, 100 out of 110 constituents in the software sector have posted negative returns, with over 20 stocks down more than 30%, reflecting growing concerns about the sustainability of software business models.
- Deteriorating Technical Indicators: A striking 97 of the IGV ETF's constituents are trading below their 200-day moving average, highlighting a broad breakdown in technical momentum, while the 14-day RSI has plummeted to 16, the lowest since September 2001, indicating extreme market pessimism.
- Pressure from Business Model Shifts: Macro strategists have noted that the rise of AI tools is replacing expensive SaaS platforms, leading to pricing pressures, slower renewals, and declining customer retention, prompting investors to rethink growth and value in the AI era.
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Analyst Views on AI
Wall Street analysts forecast AI stock price to rise
13 Analyst Rating
4 Buy
6 Hold
3 Sell
Hold
Current: 9.190
Low
18.00
Averages
30.45
High
50.00
Current: 9.190
Low
18.00
Averages
30.45
High
50.00
About AI
C3.ai, Inc. is an enterprise artificial intelligence (AI) application software company. The Company has built a solution that enables its customers to rapidly develop, deploy, and operate enterprise AI applications. It offers families of software solutions, which it collectively refers to as its C3 AI software: The C3 AI Platform, C3 AI Applications, and C3 Generative AI. The C3 AI Platform, its core technology, is a comprehensive, end-to-end application development and runtime environment that is designed to allow its customers to rapidly design, develop, and deploy Enterprise AI applications of any type. Its C3 AI Applications, built using the C3 AI Platform, is a portfolio of pre-built, extensible, industry-specific, and application-specific software-as-a-service offerings (SaaS) Enterprise AI applications that can be rapidly installed and deployed. Its C3 Generative AI combines the utility of large language models, generative AI, reinforcement learning, natural language processing.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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See More
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- Layoff Implementation: The company announced a 26% workforce reduction to improve its cost structure, reflecting the urgency of addressing ongoing losses and signaling management's concerns about future profitability.
- Founder Departure Impact: Founder Thomas Siebel stepped down due to health issues, and while new CEO Stephen Ehikian remains optimistic about the company's prospects, the lack of substantial performance backing increases market uncertainty.
- Stock Price Decline: C3.ai's shares have fallen 33% this year, with a market cap of $1.3 billion; despite the high enthusiasm for AI, the company has failed to translate this into financial growth, prompting investors to approach the stock with caution.
See More
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- Massive Market Potential: The global market for decision-making AI agents is projected to grow from $8 billion in 2026 to $215 billion by 2035, representing a more than 25-fold increase, highlighting significant investment opportunities in this sector.
- C3.ai Sales Slowdown: Despite launching a new agentic AI product, C3.ai's fiscal 2026 revenue guidance of $246.7 million to $250.7 million is significantly lower than the approximately $389 million reported in fiscal 2025, indicating challenges as the company undergoes restructuring.
- SoundHound AI Rapid Growth: SoundHound AI experienced a 99% revenue increase in 2025, reaching approximately $169 million, with forecasts suggesting 2026 revenues could range from $225 million to $260 million, demonstrating strong demand and expansion capabilities in the AI market.
- Increased Corporate Partnerships: SoundHound AI secured a record number of enterprise deals in Q4, including partnerships with a global smart TV manufacturer and a Japanese insurance company, reflecting broad recognition and demand for its technology across various applications.
See More
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- Agentic AI Product Launch: C3.ai has introduced its agentic AI product designed to enhance workflow efficiency by setting objectives, constraints, and instructions; however, the immediate business impact appears limited despite high market expectations.
- Revenue Outlook Decline: The company forecasts fiscal 2026 revenue between $246.7 million and $250.7 million, significantly lower than the approximately $389 million in fiscal 2025, prompting a restructuring plan that underscores the challenges ahead.
- Market Potential: Although C3.ai is currently unprofitable, market research predicts that the agentic AI market will expand from $8 billion in 2026 to $215 billion by 2035, indicating substantial future growth opportunities.
- Strong Competitor Performance: In contrast to C3.ai, SoundHound AI has closed a record number of enterprise deals in Q4, with projected revenue for 2026 expected to reach between $225 million and $260 million, reflecting robust demand and growth potential in the AI sector.
See More
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- Dismal Financial Performance: C3.ai's latest earnings report reveals a staggering 46% year-over-year decline in sales to $53.3 million, indicating that the anticipated growth in AI has not materialized, severely undermining investor confidence.
- Leadership Change Impact: New CEO Stephen Ehikian, who took over in September, remains optimistic about the company's prospects; however, his inability to reverse the declining performance has further exacerbated market uncertainty.
- Layoff Implementation: The company announced a 26% workforce reduction to address its high cost structure, reflecting urgent measures taken under financial pressure and highlighting the challenges in its operations.
- Stock Price Continues to Fall: C3.ai's stock has dropped 33% this year, with a market cap of $1.3 billion, suggesting that while the market remains cautious, the investment risk remains high until there is a significant improvement in financials.
See More
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- Revenue Decline: C3.ai reported a revenue of only $53 million last quarter, down from $99 million a year ago, indicating a significant drop in customer adoption of its custom software products, leading to contract non-renewals and severely impacting its market position.
- Escalating Losses: The company faced an operating loss of $140 million last quarter, more than double its total revenue, highlighting severe challenges in profitability, while free cash flow was negative $126 million over the past twelve months, further depleting cash reserves.
- Stock Price Plunge: C3.ai's shares fell an astonishing 27.8% in February, and are down over 90% from their highs set after going public in late 2020, reflecting extreme market pessimism regarding its future growth potential and severely undermining investor confidence.
- Competitive Disadvantage: Compared to Palantir Technologies, C3.ai is struggling in the enterprise AI market, with Palantir achieving $4.47 billion in revenue and over $2 billion in free cash flow in 2025, showcasing a significant disparity in market strategy and execution between the two companies.
See More
C3.ai Shares Plunge 27.8% Amid Revenue Decline
- Stock Plunge: C3.ai's shares fell 27.8% in February, with a current price of $9.20 and a market cap of $1.3 billion, reflecting extreme market pessimism regarding its future prospects.
- Revenue Decline: The company reported revenue of only $53 million last quarter, down from $99 million a year ago, indicating a significant drop in customer demand for its custom software products, leading to contract non-renewals.
- Massive Losses: C3.ai incurred an operating loss of $140 million last quarter, more than double its total revenue, highlighting severe profitability issues, while free cash flow was negative $126 million over the past twelve months, further depleting cash reserves.
- Competitive Disadvantage: Compared to Palantir Technologies, C3.ai's performance in the enterprise AI market is lackluster, as Palantir achieved $4.47 billion in revenue and over $2 billion in free cash flow in 2025, showcasing a significant disparity in market positioning and profitability.
See More
