A year ago, Wall Street viewed software stocks as the next major winners from the AI boom. That outlook is now shifting as investors worry that artificial intelligence tools could disrupt traditional software services and weigh on growth across the sector.
As of Feb 13, the software sector tracked by the iShares Tech-Expanded Software Sector ETF (IGV) has fallen 22% year-to-date, Yahoo Finance data shows.
“I think we have one or two of these periods every year. The cause is always different, but the effect is always the same. Some of the most popular trades of the previous uptrend just get absolutely nuked,” said Josh Brown, CEO of Ritholtz Wealth Management, CNBC reported last week.
Since the emergence of generative AI, traders have questioned whether it has undermined the competitive advantages of software makers, even as they roll out AI features to boost their businesses.
Software stocks have fallen sharply year to date, with Intuit (INTU) and ServiceNow (NOW) tumbling more than 30%. Salesforce (CRM), Palantir (PLTR), and Adobe (ADBE) have each dropped more than 20%, while Microsoft (MSFT) and Oracle (ORCL) are down more than 15%.
Amazon Web Services CEO Matt Garman said investors may be overstating the threat that artificial intelligence poses to software companies.
“My own opinion is that much of the fear is overblown,” Garman said on Feb. 12 on CNBC.
Still, Garman cautioned that AI will reshape the software industry.
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“There’s a huge disruption,” Garman said. “AI is absolutely a disruptive force that’s going to change how software is consumed and how it’s built.”
“The systems of record, as you call them, the SaaS providers and the large players of today have an inside track to winning that business. Now, they have to innovate, just like the rest of the world. They can’t stand still. If they stand still, they’re absolutely going to be disrupted,” he added.
AWS’s revenue comes from selling its cloud infrastructure and platform services. Customers rent computing power, storage, and software from AWS instead of building their own. Software providers such as Adobe and Intuit are AWS clients.
On Feb. 5, Amazon (AMZN) said AWS generated $35.6 billion in revenue for the quarter, up 24% year over year and marking its fastest growth in 13 quarters, according to a company statement. Operating income from AWS rose to $12.5 billion from $10.6 billion a year earlier.
AWS accounted for about 17% of Amazon’s total revenue but generated roughly half of its total profit, supported by a 35% operating margin.
