AI sounds the alarm on the "software stock doomsday theory" with a market value evaporation of 1 trillion; Adobe loses its mass user base, and the "SaaS outlook is severely impacted."

The recent rapid development of AI technology has raised market concerns about Software as a Service (SaaS) companies, leading to a $1 trillion evaporation in the market value of software stocks. Although AI cannot completely replace SaaS in the short term, the valuations of related companies are facing reassessment. Investors are advised to consider investing only after companies have emerged from their difficulties. The new AI tools launched by Google and Anthropic have triggered panic in gaming and legal tech stocks, causing significant declines in the stock prices of companies such as Unity, Roblox, and FactSet

Water can carry a boat, but it can also capsize it. The AI wave led the U.S. stock market to rise steadily last year, but recently the wind has shifted dramatically, with the power of AI causing concerns that many companies face the risk of being replaced. Google and Anthropic have recently released large AI models, with Google launching the "World Model" AI tool, allowing users to instantly generate interactive 3D virtual worlds through simple text; Anthropic has also introduced the legal plugin Claude Cowork and the financial model Claude Opus 4.6. The market is worried that these AI tools will replace software as a service (SaaS) companies, leading to a small disaster in software stocks. Yuen Tze-Hei, co-director of investment strategy at Hua Fu Jian Ye, pointed out in an interview with Sing Tao Daily that AI cannot completely replace SaaS in the short term, but it has narrowed the "moat" of related stocks, and valuations are facing reassessment. However, investors should not rush to bottom-fish; it is advisable to wait for these companies to emerge from their predicament before reconsidering.

Earlier, Google launched Genie 3, causing panic in the market that AI tools would easily replace game engines and content creation, leading to sell-offs in leading game software stocks like Unity (U), game platform Roblox (RBLX), and the producer of GTA 6, Take-Two (TTWO).

On the other hand, after Anthropic added the legal field plugin Claude Cowork earlier this week, several legal tech stocks were severely hit. On Thursday (5th), Anthropic launched the financial model Claude Opus 4.6, further pressuring the stock prices of financial data service companies. FactSet fell by 10% on Thursday, and Thomson Reuters dropped over 8.5%, with both stocks still declining on Friday. According to data analytics firm S3 Partners, the market value of U.S. software stocks has evaporated by $1 trillion this year.

Software Stocks Hard to Replace by AI in the Short Term

Regarding concerns that software stocks will be replaced by AI, Yuen Tze-Hei reassured that this will not happen in the short term, as NVIDIA CEO Jensen Huang stated, AI is meant to assist in problem-solving rather than completely replace it. However, he emphasized that the market is more concerned about changes in business models.

He cited Adobe as an example, noting that the stock has performed poorly in recent years primarily due to the widespread adoption of AI image generation technology, which has caused Adobe to lose a segment of the mass consumer market. He stated that while video editing used to require Premiere, there are now many AI tools available as alternatives, forcing Adobe to retreat to the realm of professional content creators. He believes that although the company has not been replaced, its growth potential has been damaged, which is precisely the market's concern regarding other stocks.

Software Stocks' Outlook Severely Impacted

As for software companies like Unity and Salesforce, Yuen Tze-Hei mentioned that there has not yet been any noticeable impact on their performance, but their outlook and perception have been severely impacted. He explained that most of these high-valuation software stocks are not yet profitable, and their pricing is often based on price-to-sales (PS) ratios and sales growth rates. Once the market begins to doubt them, a shift in sentiment can trigger a sell-off Additionally, some believe that SaaS has no moat, but Ruan Zixi pointed out that SaaS companies are not entirely without a moat; the issue is that this moat has "narrowed," which means that the company's room for expansion has decreased, and the market's valuation will naturally be adjusted downward. In terms of investment strategy, he believes that SaaS stocks need to prove that their moats have not been eroded and that they can emerge from difficulties like companies other than Adobe before reconsideration.

Pullbacks Create Opportunities to Accumulate "Seven Giants" of U.S. Stocks

On the other hand, some market participants are still concerned that the massive investments in AI by tech companies could lead to an AI bubble, causing tech stock prices to suffer temporarily. According to statistics, the total capital expenditure of the four major U.S. tech companies, including Amazon, Alphabet, Microsoft, and Meta, is expected to reach $650 billion (approximately HKD 5 trillion) by 2026, representing a 60% increase compared to estimates from a year ago. Ruan Zixi stated that if investors hold large tech stocks, it is advisable to continue holding them. When the "Seven Giants" of U.S. stocks pull back along with the market, it is also a good opportunity to accumulate.

Jensen Huang stated that the expansion of AI capital expenditure is "reasonable and sustainable," with NVIDIA's stock price rising nearly 8%.

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