AI fears have not toppled big business software firms, FT says

In short: After a sharp sell-off tied to new AI coding tools, investors are debating whether major business software companies are still hard to replace.

What's going on

Earlier this year, some investors worried that new AI assistants could let companies build their own business software quickly and cheaply. The Financial Times points to Anthropic’s “Claude Cowork” as a moment that sharpened these fears. In a short period, nearly $1 trillion was wiped from the market value of software companies, according to the column.

Six months later, the software sector has not fully bounced back. The S&P 500 software and services index is still down 21 percent from a year ago, the piece says. Big names mentioned include Intuit, Workday, ServiceNow, Salesforce, Oracle, and SAP.

The core question is whether these companies have a “moat”, meaning customers depend on them so much that switching is painful, slow, and risky (like replacing the plumbing in a house while people are still living there). The column argues that many large firms run “systems of record”, which are the tools that store critical company data and rules. These systems also include compliance needs, which are the steps companies must follow to meet laws and industry requirements.

What to watch

Some analysts think the safer firms are the ones closest to a company’s core data, while simpler tools like dashboards and basic reporting could face more pressure. Another possibility is that big AI labs build the new “front door” interfaces, while established software firms make money by charging for access through APIs, which are controlled connections between software tools.

Source: Financial Times