As AI emerges as a keyword supporting the stock market, software companies' shares appear unable to escape weakness. Some analysts say it reflects concerns that AI could fundamentally upend the software landscape.

As so-called vibe coding spreads, using AI coding tools to write code in natural language, shares of heavyweight software companies have struggled over the past year.

According to a recent Wall Street Journal report, shares of Salesforce, Adobe and ServiceNow have fallen at least 30 percent since early last year.

An S&P index made up of small and mid-sized software stocks also fell more than 20 percent over the same period. The decline was pronounced in January. It coincided with a recent wave of assessments that Anthropic's AI coding tool Claude Code, unveiled last year, can quickly develop even complex software.

Worries persist that investment in AI itself could be a bubble. Software companies are also investing aggressively in AI in their own way. But it seems difficult to reverse the flow of attention toward AI companies.

The narrative that established software companies face increasingly fierce competition from new AI firms, and that more companies will build their own software using AI rather than buying or subscribing, still appears persuasive among investors. Rishi Jaluria (리시 잘루리아), a software analyst at RBC Capital Markets, told the WSJ that “the storyline has completely changed.” He said investors initially thought software companies could benefit from AI, but have now entered a stage of asking, “Does AI mean the end of software?”

Before the AI boom began, software was the theme that captured investor attention. A line from Marc Andreessen of Silicon Valley venture capital firm Andreessen Horowitz, that “software is eating the world,” seemed to be becoming reality. A range of promising software companies poured out across many fields, built on ultra-fast internet and cloud computing. Software, once seen as a highly volatile area, also came to be viewed on Wall Street as a symbol of stability. The tendency for companies to keep using software once adopted, and the flat-fee subscription model brought by software-as-a-service companies, increased predictability for software firms and led to rising valuations in the sector.

It was not only the stock market that saw a software boom. The private equity market also heated up. Private equity firms raced to buy software companies, and the fervor peaked as remote work spread during the COVID-19 pandemic.

But the heat appears to have cooled. According to the WSJ, over the past 2 years, 13 software companies, including login-solution company Quest, have defaulted on loans. There is also talk that private equity firms are struggling to sell software companies they acquired in 2021 and 2022. Some expect they may have to sell them for less than they paid.

Even so, few investors or analysts think software companies will become useless in the short term in the real world.

According to The Information on Jan. 27 local time, leaders of JPMorgan's IT department have no immediate plans to replace existing enterprise apps with AI, and plan to increase spending on some software companies. Anthropic, a key player behind the Claude Code boom, is also still using many existing SaaS apps.

The Financial Times reports that Thoma Bravo, one of the private equity firms most active in acquiring software companies, sees the recent drop in software stocks as an opportunity for large-scale mergers and acquisitions. It reflects a view that the AI-driven threat is exaggerated.

That said, it is also hard to say the relative undervaluation of software companies is baseless. As companies gain other options, it could be harder for software companies to grow revenue than before, and that is cited as a realistic risk. Recent share prices also appear not unrelated to this.