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The software sector faced fresh market concerns this week after artificial intelligence company Anthropic released a new AI tool, triggering a decline in software-as-a-service and data provider stocks.
Anthropic’s new AI tools are built for Claude “Cowork” AI agents and are designed to handle complex professional workflows that many software and data providers sell as core products.
This tool and other similar AI agents target functions ranging from legal and technology research to customer relationship management and analytics. This has led to concerns that AI could disrupt traditional software business models.
The 140-member S&P 500 Software & Services index fell more than 4% on Thursday, extending its losing streak to eight sessions. The index has fallen about 20% since the beginning of the year.
shares of Thomson Reuters, sales force and legal zoom One of the hardest-hit companies in U.S. trading this week, the selloff also spilled over into Asian IT companies. Tata Consultancy Services and infosys.
Despite the market turmoil, analysts and technology executives remain divided over the long-term impact that AI tools will have on these industries.
“Illogical” panic?
Technology leaders are downplaying market concerns that AI will replace enterprise software. Nvidia CEO Jensen Huang.
“The idea is that the software industry is in decline and will be replaced by AI,” he said at an event on Wednesday. “That’s the most illogical thing in the world.”
Influential technology leaders argued that AI will instead leverage and enhance existing software tools rather than completely reinventing them.
Rene Haas, CEO of British chip designer arm holdingsechoed that sentiment this week, arguing in an earnings call that enterprise AI implementation is still in its early stages and won’t be a game-changer yet.
In comments to the Financial Times, Haas described recent market fears as “microhysteria”.
Still, concerns about the software sector predate the latest selloff. Hedge funds have shorted about $24 billion in software stocks already this year as of Wednesday. Short sellers borrow shares and sell them, hoping to make a profit by buying them back later at a lower price.
Meanwhile, Anthropic unveiled what it calls an improved AI model on Thursday, just days after its latest Claude tool wowed investors.
The outlook is mixed
Many tech analysts are increasingly warning that AI will “eat” software in the long run, but views on that risk and the recent decline in software stocks remain mixed.
In a research note on Wednesday, Wedbush Securities echoed Jensen Huang’s comments, saying that while AI is a headwind for software providers, the stock decline reflects “an Armageddon scenario for the sector that is far removed from reality.”
“Companies will not completely rethink their previous tens of billions of dollars in software infrastructure investments to move to Anthropic, OpenAI, and others,” the memo said.
According to Wedbush Securities, large companies have spent decades amassing trillions of data points that are now embedded in their software infrastructure.
Other analysts see further pressure continuing.
Constellation Research, an advisory firm, said Wednesday that the stock decline does not herald the end of the industry, but reflects concerns that AI could squeeze profits and limit the amount software companies can charge.
“Cannibalization of SaaS by AI-driven workflows is likely to occur, which will impact trading multiples in this sector,” Rolf Balck, tech equity analyst at Futurum Group, told CNBC.
That said, Bulk argued that some software providers, particularly those running mission-critical enterprise workloads such as Oracle and ServiceNow, still have a persistent “right to earn.”
He added that because of the depth of data and its entrenched role in customer workflows, AI is likely to coexist with AI rather than completely replace it.
This bet is being pursued by software companies such as AlphaSense, a market data and research firm that leverages AI tools across its products.
Chris Ackerson, senior vice president of products at AlphaSense, said in a statement to CNBC that “the future belongs to providers that combine advanced AI with trusted content, explainability, and deep domain context.”
—CNBC’s Matthew Chin contributed to this report
