Author：Wall Street CN
When Wall Street started describing software stocks as the "newspaper industry," the market's fear of the impact of AI had reached an extreme.
According to TrendFocus, in a recent report, Goldman Sachs analyst Ben Snider and his team unusually compared the current software industry to the newspaper industry, which was disrupted by the internet in the early 2000s, and the tobacco industry, which faced regulatory crackdowns in the late 1990s. This analogy alone is enough to illustrate Wall Street's pricing of "AI impacting software business models."
Goldman Sachs believes that the current valuation decline does not reflect short-term earnings fluctuations, but rather a fundamental skepticism about whether the long-term growth and profit margins of the software industry still hold true.
Goldman Sachs cautions that when an industry is perceived by the market to face disruptive risks, the bottoming out of stock prices depends on whether earnings expectations are stable, rather than whether valuations are cheap enough.
From "AI Dividend" to "AI Threat": Software Stocks Face Collective Revaluation
Goldman Sachs points out that software stocks have become the "eye of the storm" in the AI impact narrative over the past week, with the software sector plunging 15% in a week and falling 29% from its September 2025 high. Goldman Sachs' "AI at Risk" basket has fallen 12% year-to-date.
Direct catalysts triggering the shift in market sentiment included Anthropic's release of the Claude collaboration plugin and the launch of Google's Genie 3 model. From an investor's perspective,These advancements are no longer just about "increasing productivity," but are beginning to directly threaten software companies' pricing power, competitive advantages, and even their very existence.
Goldman Sachs explicitly stated in its report that the current market discussion is no longer just about downward revisions of profits, but rather "whether the software industry is facing a long-term decline similar to that of newspapers."
Valuations may appear to be "returning to rationality," but the market is already betting on a collapse in growth.
On the surface, software stock valuations have already seen a significant decline:
The forward price-to-earnings ratio of the software sector has fallen from about 35 times at the end of 2025 to about 20 times at present, which is at a low level since 2014.
The valuation premium relative to the S&P 500 has also fallen to its lowest level in more than a decade.
But Goldman Sachs emphasizes that the problem is not valuation, but that the assumptions behind the valuation are collapsing.
The report shows that the current profit margins and consensus revenue growth rates in the software industry are still at their highest levels in at least 20 years, significantly higher than the S&P 500 average. This means that the market's valuation decline reflects expectations of a significant downward revision in future growth and profit margins.
Goldman Sachs found through horizontal comparison that:
In September 2025, when software stocks are still at a P/E ratio of 36, this corresponds to a mid-term revenue growth expectation of 15%–20%.
With a current valuation of around 20 times earnings, the corresponding growth assumption has been reduced to the 5%–10% range.
In other words, the market is pricing in a “growth cliff” in advance.
A word of caution from the "Newspaper Moment": Valuation is not the bottom; stable profitability is.
What has attracted the most market attention in this report is Goldman Sachs' use of historical cases.
Goldman Sachs noted that newspaper stocks fell by an average of 95% between 2002 and 2009. The real bottom was not reached when the macroeconomy improved or valuations were cheap enough, but after consensus earnings forecasts stopped being revised downwards.
A similar situation occurred in the tobacco industry in the late 1990s: before the main settlement agreement was implemented and regulatory uncertainty was eliminated, stock prices continued to be under pressure, even though valuations had been significantly compressed.
Based on these cases, Goldman Sachs' conclusions were quite calm, even pessimistic:
Even if short-term financial reports show resilience, it is not enough to negate the long-term downside risks brought about by AI.
Capital has already voted with its feet: shunning "AI risks" and embracing the "real economy."
Against the backdrop of rising AI uncertainty, market preferences are shifting from distancing themselves from "AI risks" to embracing the "real economy."
Goldman Sachs data shows that hedge funds have recently significantly reduced their exposure to the software sector, although they remain net long overall; while large mutual funds began systematically underweighting software stocks as early as mid-last year.
Meanwhile, funds are clearly flowing into sectors considered to have "lower AI impact," including typical cyclical industries such as industrials, energy, chemicals, transportation, and banking. Goldman Sachs points out that its value factor and industrial cycle-related portfolios have both significantly outperformed recently.
Despite its overall cautious tone, Goldman Sachs has not turned entirely bearish. Its analyst team believes that certain specific sectors remain defensive:
Vertical software is more difficult to be directly replaced by AI because it is deeply embedded in industry processes and has high customer migration costs.
Information service and business service companies with proprietary data and clear industry barriers may have their AI impact overestimated by the market.
Some companies that are highly software-related but whose business models are not purely software-based have recently shown signs of being "wrongly targeted."
But the premise remains clear: only when earnings expectations truly stabilize can the stock price complete its bottoming process.
If the core narrative for software stocks over the past two years has been "AI will amplify growth," then this Goldman Sachs report marks a turning point—the market is beginning to seriously discuss whether AI will erode the commercial value of software itself. The real question isn't whether software stocks can rebound, but which software companies can prove they won't become the next newspaper industry.
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