The software industry encountered fresh market anxieties this week after AI firm Anthropic unveiled new AI solutions, causing a downturn in stocks related to software-as-a-service and data providers.
Anthropic’s latest AI products, created for its Claude “Cowork” AI system, are intended to manage intricate professional tasks that many software and data suppliers market as essential offerings.
The solutions and other analogous AI systems are aimed at operations such as legal and technological research, customer relationship management, and analytics. This has sparked worries that AI might undermine established software business models.
The S&P 500 Software & Services Index, comprising 140 components, dropped more than 4% on Thursday, lengthening its decline to eight days. The index has decreased roughly 20% so far this year.
Shares of Thomson Reuters, Salesforce and LegalZoom were among the hardest impacted in U.S. trading this week, with the decline extending to Asian IT companies Tata Consultancy Services and Infosys.
Regardless of the market unease, analysts and technology leaders are still split regarding the enduring effects of these AI tools on these sectors.
‘Illogical’ fear?
Among technology chiefs diminishing the market worries that AI could supplant enterprise software is Nvidia CEO Jensen Huang.
“There exists this idea that the software industry is declining and will be superseded by AI,” he stated at an event on Wednesday. “It is the most irrational notion imaginable.”
The prominent tech figure instead contended that AI will utilize and augment current software applications rather than utterly transforming them.
Rene Haas, chief executive of British chip manufacturer Arm Holdings, reiterated that view this week, asserting during an earnings call that enterprise AI implementation is still in its infancy and not yet profoundly transformative.
Haas characterized recent market anxieties as “micro-hysteria” in remarks to the Financial Times.
However, concerns regarding the software sector existed prior to the recent sell-offs. Hedge funds have already shorted approximately $24 billion in software shares this year as of Wednesday. Short sellers borrow shares, sell them, and aim to repurchase them later at a reduced price for profit.
Meanwhile, on Thursday, Anthropic introduced what it referred to as an enhanced AI model, emerging just days after its latest Claude tools unsettled investors.
Diverse perspective
While numerous tech analysts increasingly caution that AI is going “to consume” software in the long run, opinions on that threat and the latest downturn in software shares remain varied.
In a research note on Wednesday, Wedbush Securities mirrored Jensen Huang’s remarks, stating that while AI presents a challenge for software providers, the sell-off represented an “Armageddon scenario for the sector that is far from the truth.”
“Businesses won’t completely replace tens of billions of dollars of previous software infrastructure investments to switch to Anthropic, OpenAI, and others,” the note remarked.
Major enterprises, Wedbush Securities noted, took decades to amass trillions of data points now embedded in their software infrastructure.
Other analysts forecast more enduring pressure.
Consulting firm Constellation Research stated Wednesday that the sell-off indicates concerns that AI may exert pressure on profits and restrict how much software firms can charge, rather than suggesting a demise for the sector.
“There is likely to be cannibalization of SaaS by AI-driven workflows, which will influence the valuation the sector commands,” Rolf Bulk, tech equities analyst at Futurum Group, told CNBC.
Regardless, Bulk asserted that a segment of software providers, particularly those managing mission-critical enterprise workloads like Oracle and ServiceNow, continue to have a sustained “right to earn.”
The depth of their data and integrated role in customer processes make them more likely to coexist alongside AI rather than be completely replaced, he noted.
This strategy is being pursued by software firms like AlphaSense, a market data and research company that employs AI tools throughout its product range.
In a comment to CNBC, Chris Ackerson, SVP of Product at AlphaSense, indicated that the “future belongs to suppliers that blend advanced AI with reliable content, interpretability, and thorough domain context.”
— CNBC’s Matthew Chin contributed to this report
