Software Stocks Struggle at Start of 2026
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Feb 11 2026
0mins
Should l Buy MSFT?
Source: Fool
- Industry Weakness: As of now, the iShares Expanded Tech-Software ETF has dropped 20% this year, indicating a weak performance in the software sector, significantly lagging behind the stable performance of the S&P 500 and Nasdaq Composite, reflecting a lack of confidence in software stocks.
- Accelerating Infrastructure Spending: Major tech companies like Microsoft, Google, and Amazon have collectively invested hundreds of billions in AI infrastructure over the past three years, with forecasts suggesting hyperscalers will exceed $500 billion in infrastructure budgets by 2026, although analysts express skepticism about the sustainability of this spending pace.
- Valuation Pressure: Palantir Technologies boasts a forward price-to-sales ratio nearly double that of its peers, and despite its impressive growth profile, the high valuation places immense pressure on the company to deliver exceptional quarterly earnings, making any misstep likely to trigger severe sell-offs.
- Threat to Traditional Models: The rise of large language models poses a challenge to traditional SaaS models, as these models can integrate with existing enterprise software platforms to enhance data processing efficiency, leading investors to worry about the future of software stocks.
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Analyst Views on MSFT
Wall Street analysts forecast MSFT stock price to rise
34 Analyst Rating
32 Buy
2 Hold
0 Sell
Strong Buy
Current: 369.370
Low
500.00
Averages
631.36
High
678.00
Current: 369.370
Low
500.00
Averages
631.36
High
678.00
About MSFT
Microsoft Corporation is a technology company that develops and supports software, services, devices, and solutions. Its Productivity and Business Processes segment consists of products and services in its portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. It comprises Microsoft 365 Commercial products and cloud services; Microsoft 365 Consumer products and cloud services; LinkedIn, and Dynamics products and cloud services. The Intelligent Cloud segment consists of its public, private, and hybrid server products and cloud services. It comprises server products and cloud services, including Azure, and enterprise and partner services, including Enterprise Support Services. Its More Personal Computing segment primarily comprises Windows and Devices, including Windows OEM licensing; Gaming, including Xbox hardware and Xbox content; Search and news advertising, comprising Bing and Copilot, Microsoft News, and Microsoft Edge.
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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- Future Outlook: Executives express strong confidence in the upcoming June quarter targets, anticipating continued growth in Copilot adoption, even as analysts note that current user growth remains in its nascent stages.
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- Strategic Focus: An OpenAI spokesperson stated that despite the leadership changes, the company remains committed to advancing frontier research, expanding its global user base of nearly 1 billion, and powering enterprise use cases, demonstrating ongoing execution strength in key areas.
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- AGI Development Leadership Absence: Fidji Simo, CEO of AGI development, will also take a medical leave for several weeks, which may impact the company's core business operations, particularly at this critical juncture ahead of the IPO.
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See More
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- Power and Electrification Order Growth: GE Vernova has seen double-digit growth in its Power and Electrification orders over the past two years, indicating strong market demand and growth potential, despite slower growth in its wind segment.
See More
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- Underwhelming AI Assistant: Microsoft's Copilot AI assistant has faced widespread criticism for its high price and relatively poor performance, leading to low adoption rates, which indicates that Microsoft has squandered its early advantage from its partnership with OpenAI, negatively impacting market confidence in its future prospects.
- Significant Stock Decline: Despite a 17% year-over-year revenue increase to $81.3 billion in the latest quarter and a 39% surge in Azure cloud service revenue, Microsoft's stock has dropped 23% year-to-date, with a market cap now at $2.8 trillion, reflecting a pessimistic investor sentiment regarding its future.
- New AI Model Development Plans: Microsoft aims to develop state-of-the-art AI models by 2027 to generate text, audio, and images, intending to compete with industry leaders like OpenAI and Anthropic; success in this endeavor could address Copilot's weaknesses and enhance product stickiness.
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See More
