SAP,the accounting software giant,saw €38.7bn (£33.6bn) wiped from its value on Thursday after announcing a slowdown in cloud computing revenues, dethroning it as germany’s most valuable listed business.
The dramatic drop sparked a debate about the future of software companies in the age of artificial intelligence. “I know ther is a general concern out there in the market about, ‘Oh, how will software sustain in the world of AI?'” Klein told investors on a call Thursday. “Cannot everyone code software?”
His answer was a firm “clearly no,” asserting that customers frequently encounter roadblocks when attempting to build their own code using AI. However, Klein is currently struggling to reassure the market of software’s continued value.
The anxieties aren’t isolated to SAP. Across Europe, established software companies face mounting pressure as the potential for AI to disrupt their business models looms large.
FTSE 100-listed Experian has experienced a 34 percent plunge in share value since reaching its peak in July, fueled by concerns that AI could automate the traditionally complex process of generating credit scores.
The London Stock Exchange Group (LSEG), which acquired data and analytics firm Refinitiv in 2021 for $27bn (£19.7bn), has declined 32 percent from its high last February, as investors speculate that services like ChatGPT could replicate its core functions.
RELX, another FTSE 100 data analytics company, has slumped 37 percent from its record high a year ago, and experienced its worst weekly performance since the start of the 2020 pandemic, falling over 11 percent this week.
While AI development companies like Nvidia have seen their share prices soar, a specific segment of the tech industry feels distinctly threatened. Why subscribe to expensive accounting software when an AI bot can perform the same calculations? Is a dedicated analytical program truly necessary when a chatbot can deliver similar insights?
“There are some genuine concerns that AI investments will eat the software companies’ lunches,” noted John Praveen, of investment manager Paleo Leon.
Facing this challenge, at-risk companies are now in a race to integrate AI into their existing platforms, hoping to convince investors they are adapting to the changing landscape rather than being overtaken by it.
Brian Cassin, Experian’s chief executive, informed analysts earlier this month that the company is “progressing our plans to embed AI more deeply across our platforms.” He highlighted that its consumer services business is “increasingly supported by EVA, our agentic AI assistance,” with sales up 8 percent in the most recent quarter.
Despite this progress, Experian’s share price still dropped nearly 9 percent over the last week, reaching a new two-year low. Arthur Truslove, of Citigroup, commented, “The stock has been weak as Experian has been considered to be an artificial intelligence loser.”
In an attempt to alleviate concerns, Experian announced a new $1bn share buyback program on Friday, which provided a temporary boost of 3 percent to its valuation. Analysts at stifel called the move a “sensible reaction to recent share price weakness.”
Some analysts believe the recent sell-off in the software sector is an overreaction. Enrico Bolzoni, of JP Morgan, argued that the decline in LSEG’s share price was “unwarranted,” asserting, “AI represents an prospect for LSEG over the near and medium term, and not a threat.”
Nay Soe naing, of German private bank Berenberg, stated after SAP’s Thursday plunge that he didn’t believe the “modest miss” to revenue forecasts “justifies the severity of the negative share price reaction.” He encouraged investors to purchase the stock, citing AI’s potential to “upsell and cross-sell.”
Some investors responded positively, with SAP’s share price rising more than 3 percent on Friday.
Though, with software company share prices remaining considerably down over the past year, executives face a considerable challenge in persuading the market that AI won’t spell the end of their businesses.
