Software Sell-off = Sale Season. If you Know what to Buy.

CNBC and Axios contributed to this report.

If you like drama with your portfolio, welcome to the software clearance rack. Recent pounding in software stocks has sent prices tumbling and headlines buzzing — but for some investors it’s less apocalypse and more buying opportunity.

Why it matters: this isn’t just another hiccup. AI is forcing a rethink of which enterprise-software business models survive and which get steamrolled. That makes today’s drops a fork in the road: you can either panic-sell, or pick through the rubble for companies that actually gain from AI instead of being replaced by it.

“Good companies are getting disregarded,” says Marta Norton, chief investment strategist at Empower Investments. “Yes, there’s a risk of catching falling knives, but there’s also great opportunity.”

Translation: don’t buy everything on sale — buy the stuff that still has a reason to exist in an AI-first world.

How to tell the keepers from the knockoffs. Think of software firms in two buckets:

• Single-solution sellers — these companies are famous for one product (e-signatures, file-sharing, that one niche app). That makes them vulnerable. If AI can do the job faster and cheaper, they’re at risk of turning into the BlackBerrys of disruption — survivors in name, irrelevant in value.
• Workflow-and-infrastructure plays — these are the platforms and systems that anchor workflows, lock in customers and make it expensive to switch away. They own the rails. That’s defensive revenue.

Under that framework, Microsoft — which owns broad platforms, cloud infrastructure and enterprise hooks — looks like a buy at current prices. DocuSign, dependent on a single, easily replicated workflow, feels riskier.

Pressure has been intense: cloud and software ETFs are down, hedge funds are piling on short positions, and the sector has lost significant market value. The WisdomTree Cloud Computing Fund, for example, has plunged nearly 20% this year. Short sellers are active — S3 Partners puts hedge fund short exposure into the billions — and headlines have a jittery flavor.

Yet not everyone’s panicking. Longtime analysts like Fred Hickey shrug at the rout, while Citi’s Tyler Radke says the pullback creates buying windows. The truth is somewhere in between: this is a stock-picker’s market again, not a “buy-the-whole-sector” party.

It’s not just AI angst. Hardware weakness — a brutal guide from chipmaker AMD sent shares tumbling more than 17% in a single session — has amplified the pain. The Nasdaq has been hurt, too, slipping about 1.5% on a recent trading day and flirting with its roughest week since November. Even bitcoin slid below $70,000, a sign traders are stepping back from riskier bets.

So what should nervous or opportunistic investors actually do?
A short checklist for smart buying:

1. Focus on defensibility. Is the company central to a customer’s workflow? Platform > point app.

2. Check margins and cash. Heavy R&D spend is fine if it’s building durable tech — not just noise.

3. Watch switching costs. If customers can’t easily move away, valuation upside is safer.

4. Beware of hype multiples. Lots of growth is priced in; demand proof matters.

5. Think time horizon. This is a long game — be ready to hold through volatility.

Bottom line: The software slump sucks if you owned the wrong names. It’s a gift if you can tell Apple from Apple-esque. Market pullbacks reopen a classic investing rule: don’t buy everything on sale, buy the things that are cheap for the right reasons. If you pick well, this selloff could be the price reset that launches your next big tech winner. If you don’t, you could end up holding a BlackBerry.