NEW YORK CITY, New York: The recent sharp selloff in U.S. software stocks, fueled by concerns that advances in artificial intelligence could disrupt the sector, may have gone too far and is creating a buying opportunity, strategists said.

JPMorgan said the pullback has created opportunities for investors to position for a rebound in higher-quality names.

"The market is pricing in worst-case AI disruption scenarios that are unlikely to materialize over the next three to six months," JPMorgan strategists, led by Dubravko Lakos-Bujas, said in a note early this week.

"Given the positioning flush, overly bearish outlook on AI disruption of software and solid fundamentals, we believe the balance of risks is increasingly skewed towards a rebound, especially in higher quality software segments," the strategists wrote.

Global markets were rattled last week after AI developer Anthropic launched plug-ins for its Claude Cowork agent, reigniting fears that rapidly advancing AI systems could encroach on the core businesses of traditional software companies. The S&P 500 software and services index fell as much as 17 percent in six sessions through last week, before rebounding about seven percent since then.

While not ruling out further weakness, JPMorgan recommended "investors add exposure to a basket of higher quality and AI-resilient software companies."

The basket includes Microsoft, Palo Alto Networks, ServiceNow, CrowdStrike Holdings, and Datadog, some of the worst-hit stocks in the recent selloff.

Separately, Morgan Stanley strategists said they see attractive opportunities in the sector, citing strong revenue expectations, improving earnings revisions, and potential benefits for mega-cap technology firms from a weaker dollar.

"We believe the dislocation in U.S. Software valuations is sentiment-driven, not fundamental," Katy Huberty, Morgan Stanley's global director of research, said in a note.

Meanwhile, retail investors bought software and technology stocks following last week's heavy selloff, largely brushing aside concerns over AI disruption.