Software Sell-Off: What Smart People Are Saying

Nvidia CEO Jensen Huang said software is a tool for AI to use, rather than replace.

“There’s this notion that the tool industry is in decline and will be replaced by AI,” Huang said during a recent Cisco AI event. “You could tell because there’s a whole bunch of software companies whose stock prices are under a lot of pressure because somehow AI is going to replace them. It is the most illogical thing in the world and time will prove itself.”

Huang named ServiceNow, SAP, Cadence, and Synopsis, as bright spots in the industry.

Sridhar Vembu, founder of Zoho, a cloud-based software company, said SaaS was “ripe for consolidation” long before the rise of AI.

“An industry that spends vastly more on sales and marketing than on engineering and product development was always vulnerable,” he wrote on X. “The venture capital bubble and then the stock market bubble funded a fundamentally flawed, unsustainable model for too long. AI is the pin that is popping this inflated balloon.”

Vembu said he asks his employees to consider the possibility of the company’s death.

“When we accept that possibility, we become more fearless and that is when we can calmly chart our course.”

Steven Sinofsky, who helped lead the development of Windows 7 and 8, said AI may change “what we built and who builds it,” but tales of software’s demise are just “nonsense.”

“Wall Street is filled with investors of all types. There’s also a community, and they tend to run in herds. The past couple of weeks have definitely seen the herd collectively conclude that somehow software is dead. That the idea of a software pure play will just vanish into some language model,” Sinofsky wrote in a lengthy post on X. “Nonsense.”

Sinofsky said it is true some companies will fail. He also noted that such cycles have happened in retail and media.

“Strap in,” he wrote. “This is the most exciting time for business and technology, ever.”

Arm CEO Rene Haas isn’t panicking.

“As I look at enterprise AI deployment, we aren’t anywhere close to where it can be,” Haas told the Financial Times.

Haas, who leads the SoftBank-owned semiconductor company, said the current market reaction is “micro-hysteria.”

JPMorgan analyst Stephen Parker said investors shouldn’t be too worried by the sell-off.

“We’re seeing a rotation,” Parker told CNBC. “It’s about a broadening of the recovery story. Cyclicals are picking up the slack, and it’s not just the AI infrastructure plays and the hyperscalers that are driving markets higher.”

Parker, the co-head of global investment strategy at JPMorgan Private Bank, said AI developments are likely to continue to cause disruption in the software industry.