AI Revolution Turns Inward: A Guide to Navigating the Sector's Creative Destruction

AI is disrupting software industries, with worries of AI tools replacing core software businesses at near-zero marginal cost. Investors are selling shares in software companies, including Monday.com, due to concerns about AI's competitive threat. The industry is evolving rapidly, with foundational AI models like ChatGPT-5 capable of building functional apps in minutes, threatening entry-level enterprise software. Investment action steps include avoiding or selling feature-based software companies and focusing on companies with defensible AI moats.

Artificial intelligence (AI) is rapidly evolving, sparking significant concerns within the software industry. Investors are increasingly worried that AI tools could replace traditional software businesses at near-zero marginal costs, leading to a selloff across the sector. A 30% plunge in Monday.com Ltd. shares grabbed investor attention, with analysts attributing the drop to fears of long-term competitive threats from AI [1].

The broader software sector has been affected, with major players like SAP SE experiencing substantial losses. SAP SE, Europe’s largest company by market value, dropped by as much as 7.1% in Frankfurt, erasing nearly €22 billion ($26 billion) at the session low [1]. Other companies, such as Sage Group Plc and Dassault Systemes SE, also slid, following a similar trend seen among U.S. tech giants like Salesforce Inc. and Workday Inc. [1].

The concern is that AI tools can now facilitate the creation of applications more quickly and at significantly lower costs, potentially undermining the competitive advantage of incumbent software companies. This narrative has led to a significant decline in software valuations and increased volatility in the short term [1]. The sector is currently one of the weakest performers within tech, with shares of Salesforce down over 30% and Adobe by about 25% [1].

The fear of AI disruption has also spread to companies offering research insights and IT consultancy services. For example, Gartner Inc. reduced its full-year outlook last week, citing factors like tariffs and government budget cuts, but analysts saw the weak result as exacerbating concerns over competition from AI research tools [1].

Despite the gloomy outlook, some analysts see buying opportunities following the rapid price drops. Morgan Stanley analyst Josh Baer raised his rating on Monday.com to overweight, noting that the stock’s pullback “more than incorporates” risks of AI disrupting search advertising and performance marketing [1]. However, Jefferies analyst Brent Thill cautioned that while the fear of AI is overblown, investors are currently uninterested in the group [1].

As AI continues to advance, foundational models like ChatGPT-5 are capable of building functional apps in minutes, posing a threat to entry-level enterprise software. Investment action steps include avoiding or selling feature-based software companies and focusing on those with defensible AI moats [2].

The crypto space is also experiencing significant growth, with projects like Ozak AI demonstrating the potential of AI-driven blockchain solutions. Ozak AI, which focuses on predictive AI and advanced data analytics for financial markets, has raised over $1.8 million in its presale, attracting a growing community of developers and investors [2].

As the software industry adapts to AI disruption, investors must remain vigilant and consider the evolving landscape. Companies that can leverage AI to create defensible moats and innovative solutions will likely fare better in this rapidly changing environment.

References:
[1] https://www.bloomberg.com/news/articles/2025-08-12/billions-wiped-out-as-software-stocks-sink-on-ai-disruption-fear
[2] https://www.globenewswire.com/news-release/2025/08/13/3132897/0/en/Ozak-AI-Secures-1-8M-With-Multiple-Partnerships-Fueling-Its-Path-to-1-Launch.html