When AI can replicate premium software tasks in seconds, what happens to recurring revenue?
What’s happening: A new AI automation tool from Anthropic sparked a $285 billion rout in stocks across the software, financial services and asset management sectors as investors raced to dump shares with even the slightest exposure. The selloff began before US markets opened on Tuesday and continued into Wednesday.
Why this matters: Markets are reassessing whether software businesses built around information resale and process automation retain meaningful value when AI systems can deliver comparable results instantly.
The software sector is experiencing a real-time valuation reset as investors recalibrate what businesses can charge in an era of AI automation, according to the chief executive of one of the world’s largest independent financial advisory organisations.
A new AI automation tool from Anthropic sparked a $285 billion rout in stocks across the software, financial services and asset management sectors on Tuesday as investors raced to dump shares with even the slightest exposure. A Goldman Sachs basket of US software stocks sank 6%, its biggest one-day decline since April’s tariff-fueled selloff, while an index of financial services firms tumbled almost 7%.
Nigel Green, chief executive of deVere Group, argues the selloff reflects a fundamental shift in market thinking about software valuations rather than fear of technological change.
Economics, not fear
“The selloff is not about fear of AI, it’s about what software businesses can realistically charge in an AI-first world,” said Green.
“When AI agents can perform legal review, data analysis, research and compliance instantly, subscription-heavy models lose pricing leverage. Investors are reassessing whether decades-old assumptions around recurring revenues still hold.”
The scale and speed of the declines underline how abruptly investor thinking has shifted. Software companies long valued for predictable subscription income, entrenched workflows and information advantages are now being judged against a different standard.
Thomson Reuters, the legal research giant behind Westlaw, saw its stock drop 18%, erasing $8.2 billion in a single session — its steepest decline on record. Britain’s RELX (which owns LexisNexis) fell 14%, losing $11 billion, while the Netherlands’ Wolters Kluwer shed 13%, down $6 billion.
Pricing power under pressure
Markets are increasingly questioning whether software businesses retain scarcity value when AI can compress tasks that once justified premium pricing and long-term contracts.
Green notes this represents a fundamental change in how investors assess technology risk. The assumption that digital products naturally enjoy durable pricing power is being challenged as automation strips complexity out of workflows.
“It is a valuation reset driven by economics. AI forces investors to examine what customers are actually paying for, and whether those services remain differentiated when intelligent systems become widely available,” he said.
Software sentiment is the “worst ever,” according to a note from Jefferies, while Anurag Rana of Bloomberg Intelligence described the sector as “radioactive”.
The selloff extended globally. Indian IT firms were among the most recent to plummet, with Tata Consultancy Services declining by up to 6%, while Infosys decreased by 7.1%.
Another factor weighing on valuations is the rapid erosion of switching costs. As AI systems improve, the friction that once locked customers into long-term software contracts weakens. Outputs become more standardised, competition intensifies and customer loyalty becomes harder to monetise.
Margin compression ahead
“Markets are drawing a clear distinction between companies that genuinely control AI economics and those that simply integrate AI to protect existing businesses,” Green said.
“The former can potentially expand margins, while the latter risk seeing cost savings passed directly to clients. Markets are, it seems, penalising firms that rely on legacy platforms, high headcount or process-heavy models that can be bypassed entirely.”
Billy Fitzsimmons, analyst at Piper Sandler, wrote in a note: “Our concern is that the seat-compression and vibe coding narratives could set a ceiling on multiples”.
The selloff reflects a growing recognition among investors that AI compresses value chains and concentrates returns, according to Green. A small number of firms will capture disproportionate gains, he explains, while a far larger group will struggle to defend pricing power.
The iShares Expanded Tech-Software Sector ETF has now fallen 29% since the start of January, the worst two-month stretch since 2008.
Australian small businesses face similar pressures. According to research examining AI adoption in Australian SMEs, enterprises must move beyond experimentation to commercial viability as investors demand concrete returns on AI investments rather than theoretical potential.
“AI removes the insulation that once protected software margins,” Green concluded.
“What looked like stable, recurring revenue is increasingly exposed. Investors aren’t waiting for earnings warnings or guidance cues. They’re repricing now, because AI accelerates disruption faster than quarterly results can capture.” The sharp falls in software stocks reflect a market recognising that margins, not innovation, are now the battleground.
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