Wall Street delivered a dramatic reversal on Friday, snapping a bruising selloff that had rattled confidence across technology and software shares. The Dow Jones Industrial Average surged nearly 1,000 points, rising 1.98% to a fresh intraday record, while the S&P 500 gained 1.5% and the Nasdaq Composite climbed 1.6%. The rebound marked the best day for the S&P 500 and Nasdaq since November, and the Dow’s strongest session since May, underscoring how quickly sentiment can flip once forced selling exhausts itself.

A Violent Reversal After a Brutal Week

Friday’s rally followed the Nasdaq’s worst three-day slide since April, a drawdown that erased more than $1.5 trillion in market value. The selloff was not triggered by a single macro shock, but by a confluence of fears that had been building quietly: elevated valuations, uncertainty over returns on massive AI investments, and concerns that artificial intelligence could disrupt existing software business models faster than expected.

Once selling momentum peaked, buyers stepped in aggressively. The move had the hallmarks of a classic “buy-the-dip” response, but it also reflected relief that the liquidation phase may have gone too far, too fast.

AI Disruption Anxiety Hits Software

One catalyst for the turmoil was renewed anxiety around AI’s impact on software companies. New tools unveiled by Anthropic raised fears that generative AI could eventually replace specialized legal and financial software subscriptions. While the real-world impact remains uncertain, the headline risk was enough to trigger heavy selling across software names.

That pressure has been building for months. Investors are increasingly questioning whether AI will be a net beneficiary for all software companies or a disruptive force that erodes pricing power. The sharp decline in several enterprise software stocks reflects a growing skepticism toward once-assumed winners.

Big Tech Spending Tests Investor Patience

At the same time, earnings season has refocused attention on capital discipline. Companies including Microsoft, Alphabet, and Amazon have outlined plans to dramatically increase spending on data centers and AI infrastructure. While these investments are framed as essential to long-term leadership, investors are demanding clearer evidence that the spending will translate into durable profits.

Recent market reactions suggest that enthusiasm for AI alone is no longer sufficient. Shares of Amazon and Microsoft both sold off sharply following earnings, highlighting how unforgiving markets have become when guidance or margins disappoint.

Valuations and the Unwind of Crowded Trades

The selloff also exposed how crowded many AI-related trades had become. Years of outsized gains left valuations stretched, making stocks vulnerable to rapid de-risking once sentiment turned. Losses in high-beta names spilled into other risky assets, including cryptocurrencies, reinforcing the sense of a broader risk reset.

As several strategists noted, crowded trades are notoriously difficult to exit cleanly. When momentum breaks, even fundamentally strong companies can suffer sharp, indiscriminate declines.

From “AI Everywhere” to Winners and Losers

The rebound does not signal a return to the old regime where anything AI-related rose in tandem. Instead, it highlights a shift in market psychology. Investors are moving away from the idea that the AI boom automatically lifts all participants, toward a more selective framework that distinguishes between sustainable beneficiaries and potential casualties.

That transition implies higher volatility, more frequent pullbacks, and sharper reactions to earnings and guidance. It also suggests that rallies may be powerful but uneven, driven by stock-specific conviction rather than broad thematic flows.

What Comes Next

Looking ahead, the key question is whether Friday’s surge marks the end of the correction or merely a pause. If earnings continue to hold up and fears around AI disruption prove overstated, markets could stabilize. But if doubts about valuation and capital efficiency persist, volatility is likely to remain elevated. For now, Wall Street has bounced—but the era of effortless gains appears firmly in the past.