A wave of investor anxiety is sweeping through global technology markets, fueled by concerns that advancements in artificial intelligence pose an existential threat to the software-as-a-service (SaaS) industry. The turmoil, which began earlier this month, has seen approximately $1 trillion wiped from the market value of various SaaS companies, prompting comparisons to a potential ‘SaaSpocalypse.’
The sell-off is rooted in fears that increasingly sophisticated AI tools, capable of handling complex professional workflows, could undercut traditional software business models. While some tech leaders dismiss these concerns as overblown, the market’s reaction suggests a deeper unease about the future of the sector. Nvidia CEO Jensen Huang recently characterized the panic as “the most illogical thing in the world,” but his reassurances have done little to stem the tide.
The turbulence is not confined to the United States. Shares of Dassault Systèmes, a French software group, plummeted 21% on Wednesday, despite CEO Pascal Daloz’s assertion that the company is positioned to “lead the industrial AI transformation.” Similar declines have been observed in the UK, with price-comparison platforms Mony (parent company of MoneySupermarket) and Future (owner of GoCompare) also experiencing significant losses. The contagion has spread to Asian IT firms, including Tata Consultancy Services and Infosys, indicating a global reassessment of the software landscape.
The catalyst for this latest bout of market jitters was the release of new AI tools from Anthropic, a San Francisco-based AI startup. These tools, built for Anthropic’s Claude “Cowork” AI agent, are designed to automate tasks previously requiring significant human expertise, ranging from legal research to customer relationship management and data analytics. The updates to Claude, described as “a more cerebral version of ChatGPT,” have raised questions about the long-term viability of software solutions that address these same functions.
The impact is being felt across a broad spectrum of the software industry. US corporations including AppLovin, LegalZoom, Oracle and Salesforce have all been caught up in the market maelstrom. Analysts at UBS have summed up the prevailing mood of uncertainty, stating, “We’re in this moment where we don’t really know what the next 12 or 24 months will bring.”
The concerns extend beyond established software giants. Wealth management firms, such as Charles Schwab and St. James’s Place, have also seen their share prices fall, as investors anticipate a shift towards cheaper, AI-powered alternatives like Altruist, a US startup offering AI-driven financial planning strategies. Even companies like Relx and the London Stock Exchange Group, previously considered relatively safe havens, have not been immune to the downturn.
However, not all observers are convinced that a full-scale ‘SaaSpocalypse’ is imminent. Some argue that companies with substantial investments in software infrastructure will be reluctant to abandon existing providers, fearing disruption to their data and operations. Erik Engstrom, CEO of Relx, recently assured shareholders that it was “almost inconceivable” that AI could replicate the company’s comprehensive offerings, which are already being enhanced by AI technologies.
The rivalry between AI developers is also intensifying. Sam Altman, CEO of OpenAI, and Dario Amodei, leader of Anthropic, are both preparing their companies for potential stock market debuts, with estimated valuations of $830 billion and $350 billion respectively. This competition could spur further innovation and potentially mitigate some of the disruptive forces at play.
The Scottish Mortgage Investment Trust, for example, took a stake in Anthropic late last year, a move that appears increasingly prescient given the acclaim surrounding Claude’s capabilities. The latest Claude updates include a legal service that streamlines contract drafting and review, as well as tools to automate tasks in advertising, marketing, and sales departments.
Despite the potential opportunities, a note of caution remains. Dario Amodei, in a recent 19,000-word essay, warned that humanity is “about to be handed almost unimaginable power,” and questioned whether existing social, political, and technological systems are equipped to manage the implications. This sentiment underscores the need for investors to closely monitor the evolving impact of AI on their portfolios.
The current market volatility may present opportunities for discerning investors. Analysts at Barclays have set a target price of 12,000p for London Stock Exchange shares, following news of a stake acquired by activist investor Elliott. However, investing in software and information-service companies at this juncture remains a high-risk proposition, as the ultimate winners and losers of the AI revolution remain unclear. The rivalry from AI is expected to depress the fees that software companies can charge, potentially lowering their profits.
As Jason Hollands of Bestinvest points out, AI represents both an opportunity and a threat to investment portfolios – it is not a one-way bet. The situation serves as a stark reminder of the disruptive potential of emerging technologies and the importance of adapting to a rapidly changing landscape.
