New AI Tools Turn the Software Market Upside Down

    Artificial Intelligence

Software is the First Victim of AI, Losing $400 Billion... And More to Come

Investors lost more than $400 billion last week as they realized that entire industries are on the verge of being replaced by artificial intelligence. The decline in software stocks, sparked by Anthropic's latest release, is just the first step in a broader transformation that could reshape how we live and work.

It also represents the first tangible judgment on what happens when AI begins to take over entire categories of business, before the much-feared "office job massacre" actually begins, according to a report by Axios. Anthropic recently released a suite of tools that threaten the programming industry—prompting investors to reassess the value of software companies, with the sector falling by 25% last week.

One of these tools, Cloud Code, promises to write code for users, allowing them to create custom software. The other tool, Quork, offers add-ons designed to help AI agents function like a permanent team colleague. AI isn't just impacting software company valuations; it's fundamentally changing how companies operate.

Sam Altman, CEO of Anthropic's competitor OpenAI, said he felt "powerless" and "heartbroken" using his AI in programming. Furthermore, software engineers using this technology are communicating with each other less than ever before, signaling what some have called "the death of a community." As a result, investors will begin seriously considering AI this week not just as a way to boost software companies' productivity, but as a potential replacement.

"AI isn't just going to change employment... it's going to affect earnings," Shelby McFadden, a portfolio manager with $2.6 billion in assets, told Axios. One strategist likened the situation to BlackBerry; the company survived, but its business model and valuation never recovered after a complete disruption. However, some investors remain optimistic about software stocks, especially now that they are priced lower.

The winners may be companies that offer software toolkits, rather than single-use applications. It will be difficult to replace existing software companies. “With AI, the code may become cheap, but the context is expensive… You can’t skip ten years of customer data using a large language model,” the research firm PitchBook noted in a report.

Growth has already slowed for software companies, an indicator to watch in other sectors whose performance may be affected by AI. David Featherstonehaw, executive vice president at VistaShares, told Axios that customer retention will indicate whether people are switching to AI tools.

McFadden said the market should be monitored to see how the broader impact of AI on employment across multiple industries is calculated over the next year or so. Investor concerns about AI’s impact on software companies may extend to other industries that could be disrupted by this emerging technology.