Software Stock Warning: Fund Manager Nick Evans on Selling High

The software sector is facing an existential threat from advances in artificial intelligence, according to Nick Evans, fund manager at Polar Capital. Evans, whose $12 billion global technology fund outperformed 99% of its peers over the past year and 97% over five years, has significantly reduced the fund’s exposure to application software, believing that many companies in the space will not survive the coming disruption. This shift in strategy proved prescient, delivering strong returns as software stocks tumbled in 2026.

Evans’s concerns center on the potential for sophisticated AI tools, such as Anthropic PBC’s Claude, to automate tasks currently performed by traditional application software. This includes functions like document creation, payroll management, and a wide range of business processes. The fear is that these AI tools will not only improve efficiency but also fundamentally alter the need for many existing software solutions.

The impact on the market has already been visible. An exchange-traded fund tracking the US software sector has fallen by 22% this year, a stark contrast to the performance of semiconductor stocks, which have benefited from the increased demand for computing power driven by AI development. This divergence highlights a growing divide within the technology industry, with AI enablers thriving while those potentially displaced by AI struggle.

Polar Capital has largely exited the application software sector, with the exception of a small position and some call options in Microsoft. Evans stated the fund won’t go back to these companies, specifically citing previous holdings like SAP SE, ServiceNow Inc., Adobe Inc., and HubSpot Inc. This decisive move underscores the fund manager’s conviction that the long-term prospects for these companies are bleak in the face of AI-driven competition.

The sell-off in software stocks has, however, presented opportunities for some investors. Recent activity at Experian last week demonstrates this. Mike Rogers, the outgoing chair of Experian, invested £41,000 in the company’s stock, purchasing shares at the lowest price in over two years. This move occurred amidst a broader sell-off affecting AI-exposed data and software companies, triggered by Anthropic’s launch of a new AI automation tool for legal work. Experian’s shares had been among the worst performers in the FTSE 100 in 2025, but Rogers’s investment signals confidence in the company’s ability to navigate the changing landscape.

The situation isn’t uniform across the sector. Experian’s recent third-quarter results showed organic revenue growth of 8%, including a 10% increase in North America. Chief executive Brian Cassin reiterated the company’s full-year expectations, emphasizing its strong momentum and leveraging of proprietary data assets. Despite this positive performance, the shares remain down a fifth since the January update, ending last week at 2,524p, a level not seen since October 2023. This discrepancy between financial performance and stock price reflects the broader market anxieties surrounding AI disruption.

The concerns extend beyond individual companies to the fundamental dynamics of the software industry. The launch of Anthropic’s AI automation tool for legal work, for example, has raised questions about industry pricing power and competitive standing. Fair Isaac Corporation’s decision to sell credit scores directly to mortgage lenders and resellers has added to the pressures faced by companies like Experian. These developments suggest a shift in the competitive landscape, with established players facing new challenges from both AI-powered startups and established tech giants.

In November 2025, Nick Evans indicated that Polar Capital had already begun shifting its focus away from software and towards AI opportunities. This proactive approach allowed the fund to capitalize on the subsequent downturn in software stocks. While Evans acknowledges that some skepticism surrounding AI is present, he believes It’s not excessive enough to constitute a bubble. This suggests a continued commitment to investing in companies that are developing and deploying AI technologies.

The situation highlights a critical inflection point for the software industry. While AI presents significant opportunities for innovation and efficiency gains, it also poses a substantial threat to companies that fail to adapt. The actions of fund managers like Nick Evans suggest that a period of consolidation and disruption is likely, with only a select few software firms ultimately surviving the AI revolution.