AI: Concerns over AI led 'Software-apocalypse'. RTZ #988

...a convenient catalyst for markets to ebb a bit

It’s been tough to miss the headlines so far this week. The WSJ went with the pithy “Threat of New AI Tools Wipes $300 Billion Off Software and Data Stocks”:

“From Legalzoom.com and Expedia to Ares and Apollo, shares of companies that sell or invest in software fell sharply on Tuesday”.

“Investors’ fears that new developments in artificial intelligence will supplant software reverberated through the stock market Tuesday, dragging down the shares of companies that develop, license and even invest in code and systems.”

They then meticulously detailed scores of software stocks that got dented by these fears. All apparently triggered by the continued momentum of new AI software at Anthropic. Something I’ve discussed in detail going on both there, OpenAI and others.

Axios provides some braoder context in “The AI disruption in software is here”, complete with the snazzy graphic above:

“Software stocks are getting dumped as investors price in a world where AI could replace software services.”

The title should read the ‘prematurely alarming’ AI disruption, in my view…they continue:

“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).”

The software analyst class, my long-time tribe, of course chimed in on cue:

“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.”

No matter than AI software from Anthropic and elsewhere complements rather than replace, as is true in most tech waves before this one:

“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.”

No matter. The markets needed a ‘reasonable’ catalyst to take profits where they could, given the recent run up in tech stocks in general.

“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.”

Of course, they had to bring in the current ‘vibe coding’ buzzword amongst Developers. Also a topic I’ve also discussed in detail of late, especially in the context of Anthropic:

“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?”

  

As wise people have been quoted over millennia, “This too shall pass”.

But it’s worth headlins for the media, and that’s what makes it notable at this early point in the AI Tech Wave.

In not so long, the markets will be collectively ‘surprised’ how much more software, and developers we will need soon as AI technologies of all types really gather steam. As Anthropic founder/CEO Dario Amodei opined on just a few days ago. A popular thing to do amongst the leaders of the top AI companies.

But it needs to be repeated over and over again for market and media participants. That it’s not as easy as binary calls to ‘buy’ or ‘sell’. In presumed ‘zero sum’ scenarios.

Technology in general, and software in particular, has proven to be a market expanding force over half a century now. And that’s not stopping anytime soon with AI software and technologies.

Despite how long current fears of AI driven ‘software apocalypse’ persist. As Nvidia’s Jensen Huang recently reiterated. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)