The selloff in sectors such as software, perceived as potentially vulnerable to artificial intelligence advancements, showed no signs of abating on Wednesday, with JPMorgan noting intense pessimism among investors.
Analyst Toby Ogg at JPMorgan remarked, "We are currently in an environment where the industry is not only presumed guilty until proven innocent but has effectively been sentenced without a trial."
Ogg, who met with over 50 investors across Europe and the United States within two weeks, indicated that they have substantially reduced their exposure to the software sector over the past 12 to 18 months. He noted in a client report that even after the recent downturn, "overall willingness to enter the market remains low."
For software companies, Ogg wrote, "better-than-expected earnings are no longer sufficient to convince the market." He added that unless they "can irrefutably demonstrate that AI acts as a sustainable growth catalyst rather than a longer-term impediment," sentiment is unlikely to improve.
He described this as a significant hurdle for software firms, as investor concerns stem from multiple angles. One key issue is their pricing model, where vendors charge per user. If AI tools reduce the number of logins required for customers to complete tasks, this model could be undermined.
Additionally, should software companies leverage their own AI tools to overhaul products, their existing revenue streams face transformation risks. Ogg stated that any new product launches from leading AI platforms—such as Anthropic's recent legal-focused offering—would further amplify investor anxieties about the sector.
On Wednesday, the selloff in software stocks spread to Asian markets and continued unabated in Europe. A basket of European companies compiled by UBS Group AG, deemed at risk of AI disruption, fell another 2.1%, after an 8% plunge the previous day. Stocks like SAP SE and Sage Group Plc extended their declines.
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