"AI Replacement Panic" intensifies! Global software stocks continue to fall, JP Morgan bluntly says: the industry has reached a "guilty until proven innocent" situation

A market panic caused by the advancement of artificial intelligence (AI) technology is spreading globally, with the software sector at the forefront, and this downward trend on Wednesday seems to show no signs of easing. Morgan Chase & Co. stated that investors' pessimism towards this sector continues to grow. Morgan Chase analyst Toby Ogg stated, "The current environment for the software sector is not only 'guilty until proven innocent', but has escalated to 'trial by media'." In the past two weeks, Ogg has had discussions with over 50 investors in Europe and the Americas, and found that these investors have significantly reduced their holdings of software stocks in the past 12 to 18 months. In a client report, he pointed out that even after this recent pullback, the market's willingness to buy software stocks remains generally low. This statement stems from a collective drop on Tuesday in the software, financial services, and asset management sectors - fears of market competition were sparked by the release of a new AI automation tool by AI startup Anthropic, leading investors to increasingly worry that breakthroughs in generative AI technology could threaten the survival of many companies. On Tuesday, a basket of American Software, Inc. Class A shares tracked by Goldman Sachs Group, Inc. dropped 6%, marking the largest single-day decline since the sell-off triggered by tariffs in April this year. The financial services index fell by nearly 7%, the Nasdaq 100 index experienced its largest intraday decline of 2.4%, ultimately closing down by 1.6%. The total market value of related sectors evaporated by approximately $285 billion on that day globally. The sell-off quickly spread to Asian markets on Wednesday, while the decline in European markets continued: after a 8% drop on Tuesday, a group of European companies facing AI disruption risks compiled by UBS Group AG Group fell by 2.1% on Wednesday. Stocks of software giants such as SAP (SAP.US) and Sage Group also continued to decline. In fact, the AI panic in the software industry has been brewing for months. When Anthropic launched the Claude Cowork tool in January, it heightened investor concerns about industry disruption; last week, Alphabet Inc. Class C (GOOGL.US) released Project Genie, which can generate immersive worlds through text or images, further dragging gaming stocks into the downward trend. As of now, the S&P North American Software Index has been falling for three consecutive weeks, with a cumulative decline of 15% in January, marking the largest monthly decline since October 2008; the iShares Expanded Tech-Software Sector ETF has been falling for six consecutive trading days, plummeting by 15% in January, the worst monthly performance since 2008. Ogg wrote in the report that for software companies, "Outperforming expectations is no longer impressing the market." Unless companies can "unquestionably prove that AI is a sustainable driver of growth for them, and not a long-term obstacle to development." So far this earnings season in the US stock market, only 67% of software companies in the S&P 500 index have reported revenues exceeding expectations, much lower than the overall tech sector's 83% rate of outperforming expectations. Even giants like Microsoft Corporation (MSFT.US), after releasing a strong earnings report last week, still faced scrutiny due to slowing growth in cloud business and AI investments, resulting in a 10% single-day drop in stock price and January being its worst performing month in over a decade. He stated that breaking out of this dilemma for software companies is not easy, as investors' concerns involve multiple levels. Among them, the seat-based pricing model, which charges based on the number of users, is most affected - the application of AI tools will reduce the number of account logins needed for customers to complete work, directly impacting the core pricing model of software companies. Additionally, if software companies develop AI tools internally for product iterations, their existing revenue models will face transformation risks. Ogg also mentioned that the release of any new products by top AI platforms, such as the legal AI tool introduced by Anthropic this time, will further intensify investors' concerns towards the software sector.