Panic over software-business disruption from AI appears to have subsided after Anthropic showcased its partnership with Salesforce, other companies.
For weeks, it looked like nothing would stop Wall Street's bloodletting of software companies.
In the end, it took a top artificial-intelligence startup to halt a market panic that has tanked the value of software vendors by hundreds of billions of dollars.
Anthropic this week showcased new updates to Claude Cowork, an advanced AI tool that allows workers to unleash an AI bot on a variety of work tasks. The company featured software giant Salesforce in its Tuesday presentation and added integration capabilities with Google apps, Docusign, LegalZoom.com and others.
Salesforce shares rose after the presentation, as did a host of other software companies, sparking a rally that extended to Thursday as investors began to understand that software companies are likely to play a role in aiding AI disruption, even if some might be better insulated than others. The closely watched IGV software index, which had fallen more than 20% this year through Friday, is up about 7% since Monday's close.
Investors further amplified the point on Thursday, sending shares of payments processor Block nearly 20% higher after the company announced plans to lay off 40% of its workforce. "A significantly smaller team, using the tools we're building, can do more and do it better," Chief Executive Jack Dorsey wrote in a shareholder letter. "Within the next year, I believe the majority of companies will reach the same conclusion and make similar structural changes."
Software companies Salesforce, Workday and Snowflake also sought to lay out how they intend to transform in the age of AI. That largely reassured investors, even though the companies delivered earnings reports that were largely in line with investor expectations or slightly below them in some areas. Similar results, or even speculative reports about the potency of new AI tools to upend industries, triggered significant declines for other companies in recent months.
"These companies are still growing" and are playing offense in AI, said Jeremy Thames, partner at Salesforce investor Harris Associates. "The existential risk priced in by the market is overstated."
In recent months, software titans including Salesforce Chief Executive Marc Benioff and CrowdStrike CEO George Kurtz have taken pains to reassure jittery investors. Analysts and even founders and venture capitalists across Silicon Valley joined the chorus.
Recent AI breakthroughs have made it possible for software engineers to be as much as 10 times as productive as they have been in the past. It has never been easier to build websites and apps and complete a host of tasks, even for nontechnical people, whose software development is often referred to as vibe-coding. But a website that helps companies manage customer relationships is a far cry from what many software companies offer, software executives said.
Analysts and industry experts have said that while new AI tools are sure to disrupt software firms, the largest, most entrenched companies can withstand the shock because of the stickiness of their services and reams of data they handle for customers.
"It remains very difficult to replicate or displace much of the knowledge, metadata and workflows incumbent systems have amassed," analysts at Deutsche Bank wrote this week. "Claude is only as useful as the data it connects to."
Still, despite earnest assurances from CEOs and a gaggle of founders and analysts, some software stocks continued to tumble.
Cybersecurity stocks took a hit last Friday after Anthropic unveiled a vulnerability-scanning capability that it is building into Claude. CrowdStrike fell 7.3%.
Kurtz took to LinkedIn over the weekend, offering a view of an AI future in which cybersecurity companies will be essential. "If you want to build AI, you need GPUs. If you want to deploy AI, you need security," he wrote.
Security experts say that the kind of automation AI systems offer could put competitive pressure on security products -- software that analyzes code for vulnerabilities or unusual activity, for example -- but AI is also beginning to fuel a whole new generation of fast-moving attacks. And that could create opportunities for strong cybersecurity players.
Dan Guido, chief executive at security consulting firm Trail of Bits, which is also a CrowdStrike customer, agrees. "You can't vibe code a security platform," he said.
In a pattern that mirrored other software selloffs, cybersecurity companies fell further, regardless of any expert analysis suggesting the market reaction was overblown. By the end of trading Monday, CrowdStrike had dropped nearly 10% from Friday's close.
The Anthropic presentation Tuesday morning brought a turnaround.
In an hour-long presentation, Anthropic spotlighted Salesforce as one company embracing AI through a Claude-powered AI assistant in the Slack workplace app, which Salesforce owns. The presentation demonstrated what analysts have been pointing to for weeks: Software companies are looking to form partnerships with the model makers as both seek ways to help workers reap productivity gains, and AI-native companies such as OpenAI and Anthropic are themselves customers of Salesforce, Workday and other software companies.
After Anthropic's event, investors showed that they see "this is a journey that organizations are going to go through," said Matthew Hedberg, a software analyst at RBC Capital Markets. "Some of these vendors will remain important from a data perspective and workflow perspective."
Software executives, startup founders and investors all said the next phase of scrutiny on companies should revolve around their resilience and what changes they are making to adjust to the rise of AI.
Salesforce and Workday reported earnings with tepid forecasts, and Snowflake's report, while positive overall, initially failed to impress investors. Yet the companies' shares stayed relatively stable as executives touted their AI strategies and partnerships.
Salesforce said that the deals it has closed in its core AI product, Agentforce, were up 50% quarter over quarter. Workday, which some analysts have said is more vulnerable to AI disruption, said it is investing heavily in AI agents and expanding partnerships it has with Anthropic.
"This is not my first SaaSpocalypse," Benioff, the Salesforce CEO, said Wednesday, referring to the recent downturn in the market dubbed software as a service. "Our market is bigger than ever because not only are we selling apps, we're selling apps and agents."
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