Billions Wiped Out As Software Stocks Sink On AI Disruption Fear

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.

Such worries fueled big losses across the sector. SAP SE — Europe’s biggest company by market value — dropped as much as 7.1% in Frankfurt, erasing almost €22 billion ($26 billion) at the session low. Smaller peers like Sage Group Plc and Dassault Systemes SE also slid in Tuesday trading.

Fears are growing that incumbent software makers may be at risk of heightened competition, if AI tools now allow applications to be made more quickly and at a much lower cost. Earlier this month, OpenAI Chief Executive Officer Sam Altman warned that the sector could enter a “fast fashion era very soon” in terms of AI enabling cheaper, rapid production. 

“Software valuations remain under pressure from the ‘death of software due to AI’ narrative, which likely drives continued volatility in the short term,” RBC Capital Markets analysts led by Matthew Hedberg wrote in a note on Tuesday.

Software is among the weakest performers within tech this year, with shares of Salesforce Inc. down more than 30% and Adobe down by about 25%. A basket of software stocks is trading near the lowest levels since January versus a group of semiconductor shares.

The worry has also spread to companies that offer research insights and IT consultancy services, such as Gartner Inc, which reduced its full-year outlook last week. While the firm cited factors like tariffs and government budget cuts, analysts said the weak result exacerbated concerns over competition from AI research tools. 

Still, some see buying opportunities following the rapid price drops. Morgan Stanley analyst Josh Baer raised his rating on Monday.com to overweight on Tuesday, saying the stock’s pullback “more than incorporates” risks of AI disrupting search advertising and performance marketing.

“Investors are fearing that AI is going to eat software and multiples are going to fall apart,” Jefferies analyst Brent Thill said in a CNBC interview on Monday. “I think the fear is overblown, but nevertheless we are living through a period right now where investors just really don’t care about the group.”