AI Takes a Hammer to the Software Sector and Shakes Up Wall Street
Software is just the first of many sectors that will be disrupted by emerging AI capabilities.
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Markets continue to be resilient. Crypto has now endured an approximate $2 trillion evaporation of value since its highs in October. Silver is less than two weeks removed from its biggest daily loss since Jimmy Carter was in the White House. Alphabet (GOOGL) is looking to be the first corporate giant to issue a 100-year bond since Motorola floated one in 1997. This was back when Motorola was the leader in cellphones and was a Top 25 stock by market capitalization. Let’s say this didn’t end well for Motorola or its shareholders.
Meanwhile, AI or the fear of AI, is starting to whack entire sectors of the market. Two weeks ago, Anthropic released a new AI tool called Claude Cowork that came with 11 plugins that help with automating everyday business tasks. The plugin that automates legal tasks caused a major stir and was a key trigger to what some called the "SaaSpocalyse." The selloff knocked over $275 billion of market cap off these stocks.
I have my continued doubts that the hundreds of billions of dollars spent annually by the hyperscalers will generate an acceptable return on investment in most cases. But there is little doubt that AI is a true technology paradigm shift that will impact the economy as the birth of the internet did at the end of the 20th century. Perhaps more so.
AI is already changing the software industry on the fly and is increasingly used to code as well as to perform many other tasks. Will established players like Salesforce, Inc. (CRM) be able to adapt and integrate AI throughout their platforms or will they just bolt an AI frontend to their existing offerings? Will new players emerge to displace the established incumbents much like Microsoft (MSFT) did to International Business Machines Corporation (IBM) as the PC era took or Amazon (AMZN) did to so much of the brick-and-mortar retail space?
Judging from the 27% decline in Salesforce shares in 2026 to date, investors appear to have substantial doubts about whether this company and so many of its software brethren will be able to adapt and fend off new competitors that emerge during the AI revolution. On a price-to-sales basis, CRM has never been cheaper. Buy the dip or avoid this potential falling knife? As my late father would quip "Only the Shadow Knows."
Software is hardly the only industry that is on the cusp of being deeply disrupted as AI capabilities grow at an astonishing pace. I look for many sectors to beaten down as worries around disruption by AI spread. This week, it looks like the financial industry will be in AI’s crosshairs. A new AI-powered tax planning tool that was just released by Altruist triggered a selloff yesterday in tax prep names likes LPL Financial Holdings (LPLA) as well as wealth management firms Charles Schwab Corp. (SCHW) and Raymond James Financial (RJF) . All of these names posted losses in the high-single digits on Tuesday.
Investors are just beginning to witness the potential disruption that will be wrought by increasing AI capabilities. I expect this to push volatility up within the markets as sectors get increasingly whipsawed as existing business models get upended by the emergence of AI.
At the time of publication, Guilfoyle was long AMZN.
