CNBC·2026-02-03 23:40Market Overview - Investors are advised to be cautious following significant declines in software stocks, driven by fears of AI disruption to business models [1] - The indiscriminate selling in the software sector has made it challenging to determine where valuations will stabilize [1] Software Stock Performance - Wall Street has adopted a negative sentiment towards software-related companies, leading to a broad sell-off, including firms that primarily collect data [2] - Notable declines include ServiceNow, which fell nearly 7% (28% year-to-date), Salesforce down about 7% (26% year-to-date), and Intuit dropping nearly 11% (over 34% year-to-date) [2] Earnings and Valuation Concerns - Despite the declines, reported profits for software stocks have not collapsed; however, Wall Street is paying less for these earnings due to future uncertainties [3] - The shrinking price-to-earnings multiple presents a challenge for investors, as it is unclear how low valuations can go [4] Selectivity in Investment - Selectivity is crucial in the current market, with some investors shifting focus to companies that heavily invest in software, such as banks and industrials, although many of these stocks have already appreciated [4] - The CNBC Investing Club has made selective purchases, such as CrowdStrike, which is viewed as a cybersecurity provider less affected by the broader software sell-off [5] Market Dynamics - The market is characterized by a divide between "winners" (users of software) and "losers" (providers of software), suggesting that the pain may not extend beyond the software sector [5]