Bloomberg: Billions Wiped Out as Software Sinks on AI Disruption Fear

Billions Wiped Out as Software Sinks on AI Disruption Fear

By Henry Ren, Bloomberg

Growing worries that artificial intelligence tools could soon disrupt the world’s biggest software businesses are sparking a selloff across the sector.

A 30% plunge in Monday.com Ltd. shares grabbed investor attention in Europe on Tuesday, with some analysts saying the drop reflected concerns over the long-term competitive threat of AI as much as results that failed to meet higher investor expectations.

Shared here >

Follow-up: I asked AI to examine the Bloomberg article, Billions Wiped Out as Software Sinks on AI Disruption Fear, and provide its thoughts. Here we go:

Key Takeaways from the Article

• AI Disruption Fears – The sector-wide selloff is being driven more by a narrative than by any single earnings miss. The worry is that AI will allow cheaper, faster software creation, potentially eroding the moat for established players.

• Sharp Price Moves – Monday.com plunged ~30%, SAP lost €22B in market value, and U.S. peers like Salesforce and Adobe are down 25–30% YTD.

• Sector Underperformance – Software is near its weakest point versus semiconductor stocks in months.

• Analyst Split – Some see this as justified caution; others, like Morgan Stanley’s Josh Baer, see oversold conditions and potential buying opportunities.

• Investor Sentiment – The group is currently unloved, which can create both risk (if AI fears prove real) and opportunity (if sentiment mean-reverts).

My Assessment

Right now, this looks like a classic sentiment-driven overshoot, but with some legitimate structural questions:

1. Short-Term Headwinds

   • Multiples are still above historical medians for many SaaS names, even after the drop.

   • AI tools will compress pricing in certain categories (basic productivity, CRM features, analytics dashboards).

   • Macro headwinds like tariffs and government budget tightening add another layer of risk for enterprise spending.

2. Long-Term Counterpoints

   • Incumbents have scale, brand trust, and enterprise relationships that give them distribution and integration advantages over “fast fashion” AI startups.

   • AI disruption will likely be uneven — commoditizing some features but enhancing others, and enabling existing players to expand margins if adopted well.

   • Historical precedent: every tech “disruption” wave (mobile, cloud, open-source) has created winners among incumbents and startups — the key is picking those that adapt.

3. Market Position

   • The iShares Expanded Tech-Software ETF (IGV) is ~25–30% off highs, underperforming SOX (semiconductors) sharply.

   • Historically, when relative performance gaps like this reach extremes, the next 6–12 months often bring partial mean reversion.

Possible Investment Approaches

• Selective Buying on Weakness – Focus on software companies with:

  • Strong balance sheets and free cash flow

  • Proven adaptability to integrate AI into their products

  • Sticky enterprise contracts (e.g., MSFT, ORCL, ADBE)

• Avoid Fragile Niches – Names whose primary value prop is easily replicated by AI (simple task management, basic analytics) are riskier.

• Barbell Strategy – Hold core large-cap software with strong moats, paired with small positions in AI-native upstarts that could be disruptors.

• ETF Option – IGV or XSW for broad exposure if you don’t want to bet on single names.

Bottom line:

The fear looks overdone in the near term, but this isn’t a “buy everything” moment. It’s more a stock picker’s market where you want to own the software names that can use AI to widen their moat, not those most vulnerable to being replaced by it. If sentiment remains this negative, you could see good entries forming over the next 1–3 months.