Software Stocks Face Scrutiny as AI Threat Looms

Software companies are facing scrutiny as investors fear AI disruption. Salesforce, Adobe, and ServiceNow have seen significant market value losses, while some software-as-service stocks have fallen 6% this year. Morgan Stanley's software basket has underperformed the Nasdaq 100. Investors are concerned about tech obsolescence and the potential for AI to displace digital services like customer-relationship management and back-office functions. However, companies like Microsoft, Oracle, and Palantir are seeing growth due to their AI investments and perceived offense in the sector.

Software companies are facing intense scrutiny from investors who fear that artificial intelligence (AI) may disrupt their business models. According to recent reports, shares of major software firms like Salesforce, Adobe, and ServiceNow have experienced significant market value losses, with some stocks down by as much as 6% this year [1].

The concern stems from the potential for AI to displace digital services traditionally handled by these companies, such as customer-relationship management and back-office functions. This fear is exacerbated by the rise of AI tools capable of writing and developing code, which could render some traditional software services obsolete [1].

Despite the uncertainty, some companies are positioning themselves to benefit from the AI revolution. Microsoft, Oracle, and Palantir, for instance, have seen growth due to their investments in AI and their perceived offensive capabilities in the sector [1].

Morgan Stanley's software basket has underperformed the Nasdaq 100, reflecting investor concerns about the sector's future. However, the market remains uncertain about the extent to which AI will replace software. While some analysts believe that AI could significantly impact the software industry, others argue that fears are overblown and that software companies will find ways to adapt and thrive in the new environment [1].

The OpenSearch Software Foundation, which marks its first anniversary this year, is a notable example of how open-source AI projects are evolving. The foundation has seen substantial growth in community participation and project downloads, indicating a growing demand for open-source AI and search technology [2].

As the industry continues to grapple with these changes, it remains to be seen how software companies will navigate the challenges posed by AI. The key will be their ability to innovate and adapt to the rapidly changing landscape.

References:
[1] https://www.cnn.com/2025/08/25/markets/software-shares-ai-stock
[2] https://www.morningstar.com/news/pr-newswire/20250825dc57645/opensearch-software-foundation-marks-1-year-anniversary-with-community-growth-agentic-ai-and-hybrid-search-enhancements