The AI disruption in software is here
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Illustration: Brendan Lynch/Axios
Software stocks are getting dumped as investors price in a world where AI could replace software services.
Why it matters: The software selloff dragged down the entire market on Tuesday—it's the first example of how the market will respond when presented with evidence that AI could disrupt or even replace an entire industry.
Driving the news: Software stocks slid after Anthropic rolled out new AI automation capabilities for several different sectors of enterprises.
- Selling started in legal software/data-adjacent names, including Experian, the London Stock Exchange Group, Thomson Reuters and LegalZoom, then broadened across the sector.
- The iShares Expanded Tech-Software Sector ETF (IGV) is down more than 14% over the past six sessions, following a 15% drop in January (its worst month since 2008).
What they're saying: Software sentiment is the "worst ever," according to a note from Jefferies.
- It's "radioactive," Anurag Rana of Bloomberg Intelligence tells Axios.
- While AI is disrupting the sector, there is still an acknowledgement that there could be winners and losers.
- But it's not clear who will survive, so investors are getting out entirely.
Between the lines: Anthropic sees itself as a complement rather than as a competitor to software providers.
- Anthropic is able to securely connect with other tools and applications, meaning it can be your "home page" of sorts while you interact with any number of software services running through the back end.
- Claude can "render interfaces directly within it," so it could theoretically "drive even more engagement and interactivity... with all these other business systems," Scott White, head of product for enterprise at Anthropic, tells Axios.
Threat level: AI could of course replace those software services entirely at some point.
- "Our concern is that the seat-compression and vibe coding narratives could set a ceiling on multiples," Billy Fitzsimmons, analyst at Piper Sandler, wrote in a note.
Reality check: It's not the first time Wall Street has turned sour on software.
- Mobile was once set to threaten Microsoft's software business as everyone was going to be spending time on phones, not desktops.
- Microsoft's stock is up 789% over the last decade, so it clearly survived.
- This "happens a lot" within software, and there's not much companies can do to fix it, Bloomberg Intelligence's Rana says.
What we're watching: How long the software-apocalypse lasts.
- What's the proper valuation for software companies with business models that could be severely impacted by AI?
