Key Highlights

● In a 45-stock software basket, 41 names finished lower on Friday.

● Palantir entered correction territory relative to its Oct 9 record, closing near $185.29.

● Analysts described a shift from what AI can do to how it is financed.

● The 10-year Treasury yield ended near 5.1, having topped 5.30 earlier in October.

A basket wiped out

Software came under heavy pressure on Friday. In a 45-stock software basket, 41 names finished lower, and the combined losses erased roughly $130 billion in value in a single session. The iShares Expanded Tech-Software ETF, known as IGV, had been down modestly earlier in the day, per market reports, before the selling accelerated into the close.

The damage showed up clearly in the major averages. The Nasdaq Composite sank 572.99 points to 26,140.03, while the S&P 500 fell 84.62 points to 7,659.44. The Dow Jones Industrial Average held up better, slipping 175.28 points to 52,002.41. The Cboe Volatility Index jumped to 19.99.

Big names among the casualties

Palantir Technologies (NASDAQ:PLTR) was among the most visible casualties. The stock tumbled, closing near $185.29, and entered correction territory relative to its Oct 9 record, according to market reports. Estimates put the drop at about $34 billion to $35 billion of its market value.

Salesforce (NYSE:CRM) fell, ServiceNow (NYSE:NOW) slid, and Atlassian (NASDAQ:TEAM) declined. Snowflake (NYSE:SNOW) tumbled to around $306.70 late in the day. Datadog (NASDAQ:DDOG) and HubSpot (NYSE:HUBS) slid as well. Workday (NASDAQ:WDAY) was in focus after KeyBanc downgraded the stock; reports differed on the exact name of the new rating, and a KeyBanc analyst described the AI contribution as "very early."

Why the selling hit software

The common thread across market commentary was a shift in how investors are judging the AI trade, from asking what AI can do to asking how it will be paid for. Debt-funded AI infrastructure companies such as CoreWeave (NASDAQ:CRWV) were hit hardest, and the caution spread to high-valuation software names that had rallied on AI enthusiasm.

One market commentator framed the split this way: "The AI group is now splitting between companies that can fund the buildout themselves and those that have to borrow." The commentator added, "That is a change in character, and it's another reason the leaders no longer look like a safe haven."

Interest rates also played a role. A head investment strategist at the Franklin Templeton Institute said that "pressure across the long end of the curve acts as a valuation headwind for risk assets." The 10-year Treasury yield ended near 5.1, having topped 5.30 earlier in October, its highest level since 2002.

Not everyone saw the move as a verdict on business results. A senior software analyst at BofA Securities said: "First of all, this is more sentiment driven. This is not about fundamentals."

Where the money went

While software sank, investors rotated into energy, utilities, consumer staples, health care, financials and materials. Six of 11 S&P 500 sectors finished higher. Visa (NYSE:V) and Mastercard (NYSE:MA) set intraday records.

Software Earnings Under the Microscope

On the macro side, the Federal Reserve announces its next decision on Oct 28, with PCE inflation and the first estimate of third-quarter GDP due Oct 29. Earnings will put software and AI spending under the microscope. Netflix (NASDAQ:NFLX) reports Oct 20, while Meta (NASDAQ:META), Tesla (NASDAQ:TSLA), Texas Instruments (NASDAQ:TXN), IBM (NYSE:IBM), SAP (NYSE:SAP) and Lam Research (NASDAQ:LRCX) report Oct 21. Twilio (NYSE:TWLO), a communications software peer, reports Oct 29.