London’s AI adopter software stocks cratered this week after news broke that Anthropic was developing an AI-powered legal tool that could extinguish their aspirations for AI-driven growth.
RELX shares were down 16% on Tuesday as the London Stock Exchange Group and Experian lost around 10%. Over the pond, the losses have been just as severe.
US software stocks have been selling off for months as investors rotated away from names that had long been the darlings of tech investors, fearing AI-related obsolescence.
The table below illustrates the extent of the losses.
| Name | 1 year change (%) |
| Fiserv Inc | -72.1 |
| Gartner Inc | -71.1 |
| HubSpot Inc | -68 |
| GoDaddy Inc | -54.5 |
| ServiceNow Inc | -45 |
| Tyler Technologies Inc | -43.6 |
| Salesforce.com Inc | -42 |
| Accenture Ltd | -38.3 |
| Roper Technologies Inc | -37.7 |
| Fidelity National Information Services Inc | -36.8 |
| Paycom Software Inc | -36.8 |
| Adobe Inc | -36.5 |
| Workday Inc | -34.5 |
| Paychex Inc | -34.1 |
| Block Inc | -33.4 |
| CDW Corp | -30.7 |
| EPAM Systems Inc | -27.6 |
| Intuit Inc | -24.7 |
In many cases, software companies have been slow to provide AI tools, and many offer tools inferior to those developed by AI-native startups or directly by OpenAI, Google, or Anthropic. They can also be costly.
Unfortunately for software stocks, it’s not just the world’s leading AI startups that are threatening their business models.
Those companies with the right know-how and the power of AI can build a CRM like HubSpot, or a Work Operating System like Monday.com, or even an app to teach you another language like Duolingo does, at very little cost, and at great speed.
AI is empowering businesses to build their own solutions, making incumbents look very expensive.
Are the declines warranted?
HubSpot is down 70% over the past year, but you may argue this is at odds with recent results. Customer numbers are still rising, Q3 revenue was up 21%, and operating profits increased 29%.
This, however, was from a low base, and the threat of replacement by those with only a slight understanding of AI has proved too much for the market.
CRM competitor Salesforce is down 42% despite its AI offering’s ARR surging 114% over the past year. Investors just aren’t buying.
Duolingo is an obvious casualty. When chatbots can produce course curricula for almost any language on earth in seconds, why will people pay £10 a month?
Adobe shares have lost 36.5%. ChatGPT can create a suite of product images in minutes. And there are many better alternatives to ChatGPT for image creation. Adobe subscriptions aren’t the must-have they once were.
Gartner, a provider of insights and guidance to the C-Suite, has tumbled 70% as firms realise that the information available through AI isn’t much different from professional insight that costs tens of thousands of dollars.
It’s not all bad news. When looking at the software sector, remember that not all software stocks are created equal. The stocks most at risk are those providing tools. Tools can be replaced easily by AI.
Gaming companies have performed well, presumably because their software has a more creative element. Take-Two, the owner of the Grand Theft Auto series, saw its shares hit this week but are still 10% higher over the past year.
SaaS investors should rightly be worried by recent developments for the reasons explained above. On the other hand, the names with defensible data moats, particularly UK names Experian and RELX, look hard done by.
Once the dust settles, there will be buying opportunities in the sector.