Software slumps, Palantir pumps

Another earnings season, another AI winner.

Palantir reported a strong fourth quarter yesterday afternoon, beating expectations after revenue soared 70% year over year, while its profit margin expanded to 57.5% as demand for its AI platforms accelerated across government and commercial clients. The company signed $4.26 billion in contracts this quarter, including more than 60 deals, and forecasts revenue will climb more than 60% this year.

Shares rose 6.84%, making Palantir one of the few software winners on the market today.

Software feels the heat

In a software sector that’s been limping along, Palantir is strutting. The stock has rebounded sharply from its November trough, its worst month in two years, even as many peers continue to struggle.

Software stocks have lagged the broader market since early January as investors reassess how quickly AI could reshape the enterprise software market. The core fear is that AI agents may take over functions long provided by traditional vendors, a worry that sharpened after Anthropic introduced Cowork, an AI agent designed for enterprise use, and Claude Code, which has made stunning strides in coding work once dominated by software companies.

While pessimism can account for the recent software selloff, things aren’t looking too good under the hood, either. According to Bloomberg data, 71% of S&P 500 software companies have topped revenue estimates this earnings season—well below the 85% beat rate seen across the broader tech sector.

Against that backdrop, it’s no wonder that Salesforce is down 25.85% YTD, while ServiceNow has fallen 28.36%, and Adobe is off 22.3%.

The disruption spreads

The selloff deepened today after Anthropic revealed its latest Cowork update, which included a legal plug-in that allows the AI agent to review legal documents and track compliance issues.

The release revived concerns that core enterprise services could be disrupted sooner than expected, and shares of legal software data companies slid in response—before the selloff expanded across the software industry. Experian dropped 5.96%, Thomson Reuters declined 15.67%, Atlassian sank 7.65%, and LegalZoom lost 19.68%, just to name a few stocks that had a tough day.

The divergence between Palantir and its software counterparts underscores a key point to keep in mind: this isn’t a market blindly chasing AI hype. Investors are rewarding companies that can turn AI into durable growth and wider margins, while penalizing those exposed to disruption or slow to adjust. Palantir is on the right side of that divide—for now.—SY