Software Stocks Extend Selloff Amid Citrini's AI Economic Crisis Thought Experiment

Software stocks suffered significant losses this week, extending a weeks-long selloff that saw AppLovin, Datadog, and Workday shares drop more than 7% each. The decline follows the circulation of a Citrini Research thought experiment projecting an AI-driven "2028 Global Intelligence Crisis" that could trigger stock market collapse and mass unemployment.

The Citrini report presents a hypothetical scenario where AI advancement accelerates beyond expectations, rendering human labor obsolete faster than economies can adapt. Key projections include:

• S&P 500 declining below 1,500 points
• Unemployment exceeding 25%
• GDP contraction exceeding 10%

While explicitly framed as a "thought exercise," the analysis gained traction by extrapolating current trends: "What if our AI bullishness continues unabated while productivity gains remain elusive?" The report notes that despite $1.2 trillion in global AI investment since 2023, measurable economic productivity growth remains near zero according to Goldman Sachs research.

Market reactions appear driven by recognition of three structural vulnerabilities:

1. Valuation Disconnect: Software companies trade at 8-12x revenue despite slowing growth
2. Implementation Lag: Enterprise AI adoption faces integration hurdles and ROI uncertainty
3. Regulatory Risk: Increasing antitrust scrutiny of cloud providers and AI model developers

Concurrently, PayPal attracted takeover interest after its 46% stock decline, while Goldman Sachs economists reiterated findings that AI investment contributed "basically zero" to 2025 US GDP growth. The disconnect between AI hype and measurable economic output appears to be reaching an inflection point.

Limitations in Citrini's analysis warrant consideration. The scenario:

• Assumes near-perfect AI capability scaling without corresponding job creation
• Overlooks potential regulatory interventions to manage transition periods
• Uses simplified economic models that don't account for service sector adaptation

As OpenAI announces enterprise partnerships with consulting firms and Samsung integrates Perplexity into Galaxy devices, the market appears to be questioning whether current valuations adequately discount implementation risks. With Datadog trading at 12x forward revenue and Workday at 8x despite slowing growth, investors seem to be recalibrating for longer ROI timelines than previously anticipated.

The selloff signals growing market skepticism toward narratives that equate AI capability advances with near-term business value creation—a disconnect that could reshape software investment theses through 2026.