AI Fears Hit Software Stocks Hardest: Citi Sees Buying Opportunity in Key Names

• Worries over AI disruption have caused a significant sell-off in software stocks, with the iShares Expanded Tech-Software Sector ETF (IGV) down over 20% for 2026.
• The sell-off intensified after AI startup Anthropic launched new tools and fears spread to other sectors.
• Citi strategists identified software and services stocks in the Russell 3000 with over $2 billion market cap, down at least 10% in the past month, and with improved consensus EPS estimates for 2025-2027.
• Citi believes these stocks, including Microsoft and Palantir, are poised for a rebound based on strong fundamentals and improved earnings expectations, despite recent corrections.
• Analysts view Microsoft's decline as unwarranted, with Goldman Sachs and Wedbush also recommending it as a buy.