Software Sector Faces AI Disruption

Goldman Sachs' "AI at Risk" basket had its worst single-day performance in almost five years, marking the third-worst day on record. This sell-off has pushed the software sector deeper into bear market territory, erasing approximately $2 trillion in market value from its highs. Several factors triggered this increased risk aversion, including the launch of Anthropic's new AI legal tech tool, disappointing earnings from companies like Publicis, and underperformance from defensive stocks like Adyen and LSEG. Concerns about software assets within private credit and equity portfolios, highlighted in a Bloomberg report, also contributed. Despite the steep decline, Goldman Sachs has observed a lack of buyers stepping in, with software being the most net-sold subsector year-to-date. Their data indicates that net exposure to software stocks has plummeted to a record low of 4.2% of total US net market value. Goldman Sachs analysts believe that AI does not uniformly threaten existing software franchises. Platforms that own critical data, orchestration layers, or infrastructure are less likely to be disrupted and more likely to benefit as AI scales.