What Happened
Software and data company stocks dropped sharply Tuesday, with Adobe closing down 7.31%, Salesforce falling 6.85%, and Thomson Reuters plunging 15.83%. The trigger: Anthropic released an AI tool targeting legal workflows, raising concerns that AI models could replace traditional software offerings.
The sell-off spread beyond legal tech. Companies selling or investing in software, from Legalzoom and Expedia to private equity firms Ares and Apollo, saw significant declines. Blue Owl and other private credit funds with software portfolio exposure also took hits.
The Real Question
This is market psychology, not evidence. No company reported actual revenue losses. Investors are pricing in a hypothetical future where AI agents handle tasks currently requiring software subscriptions. Whether that future arrives, and when, remains unknown.
History suggests caution. Markets have overreacted to disruption threats before (remember when mobile was going to kill desktops?). Software companies adapt. They're also the ones building AI features into their products.
Nvidia CEO Jensen Huang dismissed the fears, stating AI won't replace software tools. That's what you'd expect him to say, given Nvidia supplies the chips powering both AI and traditional software. The market didn't listen.
What This Means for APAC
APAC enterprise software companies should watch this closely. If the sentiment spreads to regional markets, expect questions from boards about AI strategy and defensibility. Australian companies like Atlassian (also caught in the sell-off) and Canva face the same scrutiny.
The pattern is clear: Markets are now pricing software companies on their vulnerability to AI displacement, not just their current performance. That changes the calculus for enterprise tech investment across the region.
Three Things to Watch
- Whether revenue data supports the fear (probably not immediately)
- How quickly software vendors integrate AI features to stay relevant
- Which use cases AI actually displaces versus augments
The fine print matters here: This is about market perception and future positioning, not current business fundamentals. CTOs making software decisions shouldn't panic, but they should be asking vendors hard questions about their AI strategy.