Echoes of the 'software apocalypse': software developer stocks fall again due to AI threat

Shares of software developers fell sharply on Tuesday, March 24, recalling the February "software apocalypse". After that selloff, the sector began to recover and in March became one of the few "points of growth" in the stock market, which has remained volatile since the start of the war in Iran, MarketWatch writes. The current decline reflects investors' ongoing concerns: the market is seriously worried about how the development of AI will affect the revenues of software giants and their traditional subscription models, Barron's notes.

In trading on March 24, shares of technology giants were under serious pressure: Microsoft lost 2.7%, Salesforce collapsed by 6.2%, and quotations of CrowdStrike and Datadog fell by 4.9% and 5.2%, respectively. Among the leaders of the decline were UiPath and HubSpot, which lost about 9%. Shares of Atlassian, which owns the Trello service, fell by 8.4%.

The iShares Expanded Tech-Software Sector ETF (IGV) sector exchange traded fund sagged 4% on Tuesday. That marked the biggest daily drop since Feb. 23, the moment when the market was gripped by a "fear trade" over AI, MarketWatch reported. Back then, investors sold shares en masse of companies whose business models could be hurt by advances in artificial intelligence technology. All told, the fund is down 23% since the beginning of the year.

Traders on social media attributed the drop to AI startup Anthropic's new Claude desktop agent feature, which will allow users to assign tasks to their desktop computer directly from their phones, MarketWatch reported. Agents are software that interacts with an AI language model to perform complex sequences of tasks based on simple spoken commands, Barron's explained .

Anthropic also released data from its "Economic Index" on March 23, indicating that the use of Claude tools is beginning to extend beyond writing code to office, administrative, financial and management tasks.

This confirms the theory of "bears" in the software market about the potential replacement of human labor by artificial intelligence, Barron's specifies. Pessimists predict a future in which most office work will be done by agents rather than humans. Under this vision, sales of companies that charge per human user will plummet, Barron's adds. They will have to abandon the subscription model, which typically delivers gross margins of about 80%.

In addition, a Wall Street trader suggested in a conversation with MarketWatch that the downgrade of European software developer SAP by analysts at JPMorgan also served as a catalyst for the start of the selloff. The bank's experts expressed doubts about the company's ability to quickly adapt to the era of AI agents, which was a wake-up call for investors. As a result, stock holders began to close positions not only in SAP, but also in other companies in the sector, fearing that the leader's problems would affect the entire industry.

Another reason for the sell-off in the software sector was reports of new AI tools from Amazon. Amazon Web Services (AWS), a cloud-based division of Amazon, is developing an AI agent to automate functions in sales and business development - just the kind of departments that have previously undergone massive layoffs, according to a report from The Information. The new agent from AWS could take on some of the workload of thousands of specialists in areas such as cybersecurity and server networks, Bloomberg reports.

The alarm was heightened by Ares Management and Apollo Global Management limiting withdrawals from private credit funds. This came after a wave of buyout requests triggered by concerns about loans to software makers and other companies considered vulnerable to AI, Bloomberg summarizes.

This article was AI-translated and verified by a human editor