"The end of software stocks ignites a great revolution! After the panic selling, the market will embrace the 'software cornerstone' of the AI era."

The pessimistic narrative of "Software-mageddon" that has swept through the global stock market continues to ferment like a snowball. The launch of a series of AI tools/agent-based AI intelligent agent collaboration platforms by Anthropic, touted as the "OpenAI rival," has sparked a widespread sell-off in the SaaS subscription software sector and the broader software sector in the stock market. This selling wave persisted in the software sector during the U.S. stock trading session on Thursday and the Asian trading session on Friday. The S&P 500 index fell below its 100-day moving average at one point during the day, with 9 out of the index's 11 major sectors declining. The ETF tracking S&P 500 software and service companies saw a significant drop of 5%. The software sector in the U.S. stock market suffered the most severe sell-off since 2022 on Wednesday. The plunge in software stocks even exceeded the tech stock sell-off following the emergence of DeepSeek in January last year. The S&P 500 software and service index has fallen by about 30% since its recent high at the end of October, heading towards eight consecutive trading days of decline on Thursday. As a comparison, the overall S&P 500 index has remained relatively stable during the same period. From recent trends in large software stock outflows globally, some institutional investors have begun to enter the market to bottom-fish for these software stocks that have experienced plunges or nearly halved stock prices in recent times. They agree with Huang Renxun's positive view on software stocks - that the market has mistakenly killed those software giants that focus on "AI + core operations processes" with strong fundamentals. However, some investors remain cautious, but they tend to recognize software companies with strong fundamentals and a positive embrace of AI are likely to experience a technical rebound. Senior executives in the software and chip industry generally believe that the narrative of "Software-mageddon" caused by the trend of agent-based AI intelligent agents has amplified panic unnecessarily. Some large Wall Street institutional investors are starting to consider whether after this brutal "collective sell-off and crash shuffle," those long-term, strong fundamental, and recently AI-embracing large platform software giants are on the verge of a technical rebound trend, and which high-quality software companies will stand out in the AI application wave and benefit in the long term from the "grand narrative of profit expansion empowered by AI." Rick Sherlund, one of the most renowned technology industry analysts on Wall Street who experienced the bursting of the 2000 Internet bubble, and founder of the AI software investment bank Sherlund Partners, made a strong endorsement on Thursday for those software stocks with strong fundamentals. He emphasized that the software industry undergoes dramatic changes every 10 to 15 years and warned investors not to overreact to the threat of AI to business-mature and fundamentally strong software companies (especially those with complex enterprise-side operational processes). He pointed out that while "vibe coding" may make simple applications easier to replace, companies like the German software giant SAP, with "extensive integrated platforms and supply chains," have greater moats to protect their businesses and AI could be a "profit machine" for them. The panic surrounding AI has dealt a blow to software stocks: is the recent extreme panic sell-off in software stocks purely illogical panic, or is it a signal of a software doomsday? This week, with the launch of a series of innovative new AI tools by the AI startup Anthropic, the software sector in the stock market once again faced market concerns, triggering a historic sell-off in SaaS companies offering software as a service and the general software sector. These new AI tools from Anthropic are mostly built on its "Claude Cowork" agent-based AI intelligent agent, designed to handle extremely complex and specialized workflows that many software and data providers sell as core products. These AI tools and the functions targeted by other similar agent-based AI intelligent agents cover various complex functions such as legal and technical research, customer relationship management, financial market analysis, and financial analysis. This has raised concerns that AI could significantly weaken the business models of traditional SaaS software vendors. Earlier in January this year, Anthropic, known as the "rival of OpenAI," launched a revolutionary agent-based AI programming tool - the Claude Cowork tool. This tool is even designed to extend AI agent functions from programming terminals to more widely used office scenarios such as document management, software interaction, etc., and has already exacerbated market fears of a complete overhaul of the SaaS software industry by AI intelligent agents. The two main culprits behind the collective collapse of global software stocks from this week - the new AI tools launched by Anthropic, including an efficient agent-based AI intelligent agent that can perform various paperwork tasks such as tracking compliance issues and reviewing legal documents, and the latest on Thursday - the Claude Opus 4.6, which is significantly ahead in fields such as AI programming, financial analysis, deep analysis of legal documents, and office collaborative work, surpassing the GPT-5.2 large model by a large margin. It is important to note that the capabilities of reviewing legal documents, financial analysis, and proprietary data service technology are the strongest moats of most SaaS software companies. As the news updated on Thursday, the financial analytics service provider FactSet suffered the most with a steep drop of 10% during trading hours, followed by Thomson Reuters Corporation, S&P Global, Moody's Corporation, and Nasdaq Corporation, leading to a decline in all three major U.S. stock indices. The concerns surrounding the impact of the recent series of weighty agent-based AI tools/AI intelligent agent products from Anthropic have sparked the latest round of fluctuations, which have been further exacerbated by disappointing performance guidance from companies, including Microsoft Corporation, the global software giant, and expectations of larger-scale AI infrastructure spending. The S&P 500 software and services index, which includes 140 constituent stocks, continued its slump this week, plummeting by over 5% and extending its days of decline to eight consecutive trading days. The index has fallen by about 20% year-to-date. The stock prices of classic SaaS-type software companies in the U.S. stock market, such as Thomson Reuters Corporation, Salesforce, Inc., and LegalZoom, experienced the largest declines among the S&P 500 index constituents during the U.S. trading hours this week, and the sell-off also spread to Asian IT giants - Tata Consultancy Services headquartered in India and the Indian IT behemoth Infosys. Indian software companies mainly focus on outsourced programming-related fields, and Wall Street analysts generally believe that this sector will soon be fully replaced by AI. Although market sentiment remains highly tense, Wall Street analysts and senior executives in the tech industry have major disagreements on the long-term effects of these AI tools on the relevant software industry. Among technology leaders, those who downplay the idea that AI will completely replace enterprise software products and trigger a market panic and sell-off include NVIDIA Corporation CEO Huang Renxun. "There is a belief that the software industry is declining and will be replaced by AI," he said at an event on Wednesday. "This is the most illogical thing in the world, the market has indeed overreacted." The current global tech leader emphasizes that many agent-based AI intelligent agents, including Claude Cowork, will utilize and enhance existing software infrastructure, rather than completely revamp it. He stresses that both humans and agents will choose to use existing tools rather than reinventing them, explaining why the latest breakthroughs in AI have been largely related to the "use of tools." He emphasized: "There is a belief that the tools in the software industry are declining and will be replaced by artificial intelligence... This is the most illogical thing in the world, and time will prove it." "If you are human or Siasun Robot & Automation, or artificial intelligence, general Siasun Robot & Automation, would you use existing tools or reinvent them? The answer is obviously to use existing tools... This is why the latest breakthroughs in artificial intelligence are related to the use of tools, because these tools are designed to execute tasks clearly." The CEO of Arm Holdings, the leading chip design company based in the UK, Rene Haas, echoed this perspective this week. He said in an earnings call that enterprise AI deployment is still in its very early stages and has not yet had a massive disruptive impact, emphasizing that the software ecosystem, whether based on ARM architecture or x86 architecture, will benefit from the growth prospects brought by AI technology in the future. Haas described the recent market panic as "micro-hysteria" in a media interview on Thursday. However, concerns about the software sector existed even before the recent massive sell-off triggered by Anthropic. As of Wednesday, global hedge funds had shorted about $24 billion in software stocks this year. Short sellers generally borrow stocks on margin and then sell them in large quantities, hoping to buy them back later at a lower price to make massive profits. The software industry may experience major changes every 10 to 15 years! The long-term growth narrative of "AI reshaping profit trajectory in software sector" is quietly spreading While some tech industry analysts caution that AI will "completely swallow" software in the long term, most Wall Street analysts believe this view is too radical and are increasingly convinced after experiencing this wave of sell-offs that "AI will reshape the profit trajectory of software" in the long term. Looking at the current market dynamics and SaaS industry structure from the perspective of software engineering reality, the narrative of "AI replacing the entire enterprise software stack" is an easily extrapolated story by the market that panic selling software stocks doesn't mean that "software is no longer needed," but rather the value chain is being redistributed by AI. The "value density" of enterprise software is not only in the interface and functionality, but also in proprietary data, permissions/audit chains, compliance and responsibility boundaries, system integration, SLA and availability, change management and organizational processes; these determine that even with strong LLM, high-quality proprietary language data, structured knowledge bases, controllable tool calls, and traceable outputs are often needed to run in a production environment. An example given by Breakingviews, a study from Thomson Reuters Corporation, shows that market pricing for data-oriented companies like RELX/Reuters may have overshot: the analysis mentions that RELX faces lower risk of LLM substitution for a large part of its revenue expectations, the real "potentially affected" business proportion is limited; at the same time, these companies are also launching AI tools that are trained/enhanced based on their proprietary databases. Similarly, the views quoted by Breakingviews also emphasize that equating an AI plug-in with replacing the entire critical enterprise software layer is a leap that is illogical. Huang Renxun's statement that "software will be replaced by AI" is the "most illogical thing," essentially emphasizing that AI is more likely to be added on top of existing large software platforms rather than clearing them out. With ChatGPT sweeping the globe and heralding the arrival of the AI era, it also means that the shift from "human-driven SaaS workbenches" to "AI-native task execution layers" is now fully underway, and during this transition period, the easiest to replace are lightweight applications/simple workflows (rapid assembly in "vibe coding" style will accelerate the proliferation of these supply items), which is why some analysts firmly believe that large software systems like SAP, Microsoft Corporation, deeply integrated with strong processes and supply chains, are more likely to become the "foundation and cornerstone" of the AI agent era. The recent sell-off wave in software stocks more resembles the market's extreme way of answering a new question: to what extent will the profit pool of SaaS software vendors be reallocated to "model factories + agents"? In the short term, the answer can only be verified by two "hard indicators": (1) the real deployment and spread speed of enterprise-side AI; (2) the elasticity of AI-related product revenue and renewal/net retention of SaaS vendors - as described by some buying representatives in the Breakingviews research report, they are waiting for "actual revenue growth data of AI-related products" or more enterprise deployment announcements as catalysts for adding positions. Before that, the fluctuations in software stocks are likely to continue: on one hand, technically there may be an "oversold rebound," and on the other hand, funds will continue to do structural shifts - preferring vertical software/data asset companies with strong stickiness to AI training/reasoning systems, and platforms that can deliver AI in a "controllable, auditable, and integrable" manner; while demanding higher risk compensation for application-layer names with weaker moats, more homogeneity, and higher valuations. Therefore, the next stage of the software sector's market is likely to be "bottoming out first, followed by differentiation," and giants like Microsoft Corporation, MongoDB, Snowflake, Palantir, and SAP, which aggregate data assets and have strong fundamentals, may be more likely to emerge from the panic in a strong oversold rebound. Goldman Sachs Group, Inc., the Wall Street financial behemoth, said in their latest research report that selling pressures are mostly exhausted, and the software stocks are bottoming out. Goldman Sachs Group, Inc. emphasized that as a market barometer of the software sector, the IGV ETF, after several days of sharp declines, saw its holdings/float shares significantly "washed out," dropping to near a five-year low at one point, indicating that selling pressure may have been significantly released; meanwhile, Goldman Sachs Group, Inc. emphasized that there are signs of institutional funds flowing back into IGV starting from Wednesday and Thursday, leading to a significant increase in float shares in a single day (reportedly the largest since 2023), showing an early form of "tentative bottom-fishing funds + potential short covering". What's more crucial, Goldman Sachs Group, Inc. stressed that there were signs of clients gradually unwinding index hedges on derivatives and betting on the end of the sell-off by selling put options to cash in profits. Another Wall Street financial behemoth, Wedbush Securities, echoed Huang Renxun's views in a research report on Wednesday, stating that while AI poses a short-term headwind to software providers, the sell-off reflects a "world-ending scenario for the sector (Armageddon scenario), far from being based on realistic pricing." "Businesses will not completely overthrow their previous multi-billion-dollar software infrastructure investments and move to Anthropic, OpenAI, and other startups, and the infrastructure of these AI startups is far from sufficient to handle such a heavy load," the Wedbush Securities report said. Constellation Research, a Wall Street consulting firm, stated that the concerns reflected in this sell-off are that AI may compress profits and limit the prices that software companies can charge for seats, rather than signifying the "death sentence" of the industry. "It is likely that AI-driven workflows will gradually erode the SaaS sector, which will undoubtedly impact the sector's valuation multiples," said Rolf Bulk, a tech stock analyst at Futurum Group. However, Bulk believes that some software providers, especially platform software companies that run critical enterprise workloads (such as Microsoft Corporation, Oracle Corporation, and ServiceNow), still have a continued "right to earn." He added that their data depth and entrenched role in customer workflows make them more likely to coexist with AI in the long term and benefit from AI, rather than being completely replaced. Rick Sherlund, a technology industry analyst who lived through the bursting of the 2000 Internet bubble and founder of Sherlund Partners, a renowned AI software investment bank, made an optimistic call to the market on Thursday, stating that despite recent tech stock pullbacks, the market is on the brink of a significant uptrend. In his illustrious career, Sherlund is recognized as one of the most influential sell-side analysts in the history of tech industry on Wall Street and has consecutively topped the list of All-Star Software Analysts by the prestigious American financial magazine Institutional investor for 17 times. "The key to understanding the current market dynamics is that artificial intelligence applications are shifting from consumer-oriented to enterprise applications. As enterprises deploy AI agents and inference-intensive applications, the demand for inference computing will explode," Sherlund said. "The software industry undergoes dramatic changes every 10 to 15 years, which often presages a new bull market in tech stocks. For example, PeopleSoft was replaced by Workday, and Siebel Systems was overtaken by Salesforce." Sherlund warned investors that although vibe coding may make simple applications easier to replace, companies like the German software giant SAP, with "extensive integrated platforms and supply chains," have greater moats to protect their business, and AI could serve as a "profit machine" for them.