The Tech Download: The ‘existential’ software crisis

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Back in 2011, venture capitalist Marc Andreessen published the now well-worn words: “software is eating the world.”

Now, a debate is raging around how much software AI will eat.

Many of the world’s most valuable software stocks have seen major selloffs in recent months as investors got jittery and worried about the future of the once-vaunted software-as-a-service (SaaS) business model.

Investor concerns center around fears that corporates will buy fewer software licenses as tasks carried out by SaaS tools will be undertaken by AI.

Salesforce has dropped 21% so far this year, ServiceNow 26%, Adobe 22% and Intuit 37%.

“The one certainty is that the software model in its current form is impaired and most companies following it will need to adapt more profoundly than they have for many years in order to survive,” Paul Markham, investment director at GAM Investments, told me.

The AI evangelists see this as just the beginning of the technology’s market disruption.

More than 50% of current software in an enterprise could be replaced by AI, Arthur Mensch, CEO of French AI lab Mistral, told CNBC.

Short-term software stocks could continue to fall, Michael Field, chief equity strategist at Morningstar, told me, as AI disruption worries persist.

He added that while investor fears were “overblown” and share prices could pare losses in the coming six months, it was unlikely they’d fully recover in that time.

The most exposed to the AI risk are “horizontal point-solution SaaS vendors”, said Forrester’s principal analyst Kate Leggett.

But those that offer differentiated solutions that address complex industries in areas like healthcare or manufacturing, or that control unique, proprietary data will survive, she added.

The idea that complex software developed over decades could be replicated in-house using AI tools isn’t “viable,” Field said.

Consumer AI platform developers like Google parent Alphabet, OpenAI and Anthropic have limited experience creating “enterprise class” software, HSBC analysts said in a note on Tuesday.

The bank has a buy rating on a slew of software stocks, many of which have dipped in recent months, including ServiceNow, Salesforce and Crowdstrike.

Software has big-name defenders. On Wednesday, chip giant Nvidia CEO Jensen Huang told CNBC the markets “got it wrong” on the threat AI poses to software companies.

But the software selloff is different to earlier tech shocks because it’s not driven by “over-exuberance or excessive valuation,” said Markham.

Instead there are “existential question marks” around a business model that had previously been given a valuation premium by investors.

“Combined with the astonishing levels of capex being lavished on AI by the hyperscalers and others, it is hard to argue that this does not spell trouble and markets have voted with their feet,” he added.

The head of Amazon’s artificial general intelligence lab is leaving the company less than two years after joining.

Fintech startup Stripe hit a $159 billion valuation after a secondary stock sale for employees and shareholders, the company announced Tuesday.

AI robots will outnumber the working population within a few decades as more firms adopt AI agents and continue to squeeze costs, a former Citi executive warned on Monday.

Anthropic CEO Dario Amodei said Pentagon’s threats to remove the company’s tools from the Department of War’s systems “do not change our position” on AI on Thursday.

Nvidia’s stock fell after reporting fourth-quarter revenue and guidance that beat analyst predictions on Wednesday — with the former climbing 73% since this time last year.

So what gives? Concerns over the AI infrastructure buildout continue to hang over the tech sector, keeping a lid on investor exuberance.

I’ll be keeping my eyes on the chip giant’s conference in March, where Nvidia is expected to lay out more detail on product roadmaps and outlook.