How pessimistic is Wall Street? Goldman Sachs directly compares "software" to "newspapers"

When Wall Street started describing software stocks as the “newspaper industry,” the market’s fear of AI disruption had already reached an extreme stage.

According to Windy Trading Platform, Goldman Sachs analyst Ben Snider and his team, in a recent report, unusually compared the current software industry to the newspaper industry disrupted in the early 2000s by the internet, and the tobacco industry hit hard by regulation in the late 1990s. This analogy alone is enough to illustrate how Wall Street is pricing in the “AI impact on software business models.”

Goldman Sachs believes that the current decline in valuations reflects not short-term profit fluctuations, but a fundamental doubt about whether the long-term growth and profit margins of the software industry still hold.

Goldman Sachs reminds that when the industry is perceived by the market to face disruptive risks, the bottom of stock prices depends on whether earnings expectations remain stable, not whether valuations are cheap enough.

From “AI dividends” to “AI threats”: software stocks face collective revaluation

Goldman Sachs points out that over the past week, software stocks have become the “storm center” of the AI disruption narrative, with the software sector plunging 15% in a week, a total retracement of 29% from the September 2025 high, and the GS AI at Risk basket, compiled by Goldman Sachs, has fallen 12% year-to-date.

The direct catalysts triggering market sentiment shifts include Anthropic releasing the Claude collaboration plugin and Google launching the Genie 3 model. In investors’ view, these developments are no longer just about “productivity enhancement,” but are beginning to directly threaten the pricing power, moat, and even the existence value of software companies.

Goldman Sachs explicitly states in the report that the current market discussion is no longer just about profit downgrades, but about whether “the software industry is facing a long-term decline similar to that of newspapers.”

Valuations seem “rationalizing,” but the market is betting on growth collapse

On the surface, valuations for software stocks have already fallen significantly:

• The forward P/E ratio for the software sector has dropped from about 35x at the end of 2025 to around 20x now, the lowest since 2014;
• The valuation premium over the S&P 500 has also fallen to its lowest level in over a decade.

However, Goldman Sachs emphasizes that the issue is not the valuation itself, but the assumptions behind it that are collapsing.

The report shows that the current profit margins and consensus revenue growth expectations in the software industry remain at their highest levels in at least 20 years, significantly above the average for the S&P 500. This implies that the market’s valuation declines are implicitly betting on a substantial downward revision of future growth and profit margins.

By comparing horizontally, Goldman Sachs finds:

• In September 2025, when software stocks still traded at a 36x P/E, the corresponding mid-term revenue growth expectation was 15%–20%;
• Now, with a valuation around 20x, the growth assumptions have been lowered to 5%–10%.

In other words, the market is pricing in a “growth cliff” in advance.

The warning of the “Newspaper Moment”: valuation is not the bottom; profit stability is

The most attention-grabbing part of this report is Goldman Sachs’ reference to historical cases.

Goldman Sachs reviews that the newspaper industry’s stock prices fell an average of 95% between 2002 and 2009, and the bottom was not reached when macro conditions improved or valuations became cheap, but after consensus earnings stopped downward revisions.

A similar situation occurred in the tobacco industry in the late 1990s: before the Master Settlement Agreement was implemented and regulatory uncertainty was eliminated, even with sharply compressed valuations, stock prices continued to be under pressure.

Based on these cases, Goldman Sachs’ conclusion is quite calm and even somewhat pessimistic:

Even if short-term financial reports show resilience, it is not enough to negate the long-term downside risks brought by AI.

Funds have already voted with their feet: stay away from “AI risks,” embrace “real economy”

Against the rising uncertainty of AI, market preferences are shifting from avoiding “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 still maintain a net long position; meanwhile, large mutual funds began systematically underweighting software stocks as early as mid-2022.

At the same time, capital is clearly flowing into sectors considered to be “less impacted by AI disruption,” including industrials, energy, chemicals, transportation, and banking—typical cyclical industries. Goldman Sachs notes that its tracked Value factor and industrial cycle-related portfolios have recently outperformed significantly.

Despite the overall cautious tone, Goldman Sachs has not turned completely bearish. Its analysts believe that some sub-sectors still have defensive qualities:

• Vertical software, deeply embedded in industry processes with high customer migration costs, is less likely to be directly replaced by AI;
• Information services and business services companies with proprietary data and clear industry barriers may have their AI impact overestimated by the market;
• Some companies highly related to software but with business models not purely software-based have recently shown signs of being “mispriced.”

But the premise remains clear: only when earnings expectations truly stabilize can stock prices bottom out.

If the past two years’ core narrative for software stocks was “AI will amplify growth,” then Goldman Sachs’ report marks a turning point—the market is beginning to seriously discuss whether AI will erode the very business value of software itself. The real question is not whether software stocks can rebound, but which software companies can prove they won’t become the next newspaper industry.

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