Software sector stocks have continued to decline sharply this year, as market concerns grow that artificial intelligence (AI) technology may undermine the business prospects of traditional software companies. In this wave of sell-offs, investors have been reducing their holdings in software companies, primarily worried that AI could change corporate operational models, thereby reducing reliance on various software solutions—from code writing to report generation, AI technology is helping businesses decrease their subscription needs for external software vendors.
However, Jensen Huang, CEO of Nvidia, a company at the forefront of the AI revolution, recently issued a warning, suggesting that such selling behavior may be irrational. Huang directly stated that the idea that “AI will replace software” is “one of the most illogical ideas in the world.” He emphasized that the true value of AI lies in its integration with existing tools and software to enhance their effectiveness, rather than completely replacing them.
As a key driver of AI growth, Nvidia’s own performance also reflects the potential of technological transformation. Over the past 12 months, the chipmaker’s profits have approached $100 billion, whereas just a few years ago, its annual net profit was less than $5 billion. Nvidia’s chip technology is helping businesses transform their operations with greater efficiency.
However, the AI wave has indeed impacted the software sector. The iShares Expanded Tech-Software Sector ETF, which tracks multiple top software stocks, has fallen by approximately 20% this year. Although it experienced a slight rebound after Huang’s remarks, the ETF still includes software giants like Salesforce and Adobe, whose stock prices are currently at multi-year lows. This market situation has created potential buying opportunities for contrarian investors.
Nevertheless, analysts caution that while Huang’s perspective on AI not directly replacing software companies holds reference value, AI may still pose challenges to the future growth prospects of these firms. AI technology is expected to help small and medium-sized enterprises provide competitive solutions at lower costs, thereby altering the competitive landscape of the market.
For investors, the most prudent strategy is to conduct an in-depth analysis of each software company’s specific situation, closely monitor upcoming earnings reports and performance explanations, and focus on evaluating the company’s growth trajectory in the AI era and the strength of its performance guidance. This information will help determine whether market concerns about AI’s impact are exaggerated and whether current stock prices already hold investment value.
