There’s a new AI trade for investors: ‘Short software stocks’
Software and data services stocks remain under pressure after Anthropic’s rollout of a legal automation tool reignited fears of AI-driven disruption — and now one fund manager says that shorting software has become the market’s newest expression of the AI trade. Software names — along with data service companies, financial information providers and publishers — went into reverse this week amid fears that such business models could be upended by AI-driven disruption, which could see customers desert such companies. “Any company which collates, aggregates, disseminates software and data as a service are seen as increasingly vulnerable to disruption from AI-driven tools,” said Sharon Bell, senior European equity strategist at Goldman Sachs, in a note Friday. The new plug-in for Anthropic’s Claude co-working agent will provide AI tools across legal, sales, data analysis and marketing tasks — potentially rivalling established software services. “The Anthropic announcement was just a catalyst to realize fears that have been growing.” Software stocks, as tracked by the S & P 500 Software & Services Index, slipped 4% Thursday, with the benchmark now down almost 20% year-to-date. Goldman Sachs’ own Digital Economy basket fell 10%. Salesforce , Thomson Reuters and LegalZoom were among the names seeing the sharpest falls. CRM YTD mountain Salesforce. “In this context, shorting software stocks seems to have emerged as a new expression of the AI trade, with short interest in Software-as-a-Sector at a two-year high,” said Mark Dowding, chief investment officer at RBC BlueBay Asset Management. Outlining the bearish stance, Dowding highlighted the potential for further reverberations across capital markets from the software unwind, including in private debt and bank lending. In a market commentary Friday, Dowding said many private debt funds have “as much as 30% sector exposure in the software space.” He said many business development companies — closed-end investment vehicles run by alternative investment managers that offer access to private credit assets — are now trading at discounts of between 20% and 30% of their net asset value. Software is also heavily represented in the traditional bank lending space, he added. “This trend has been interesting, as it demonstrates that not everything that emerges in a new age of AI will be bright or wonderful, and it raises the specter of potential disruption to come,” Dowding said. However, Anish Acharya, general partner at venture capital outfit a16z, said there is a lot more software to build. “It does automate tasks — it does not automate entire jobs,” Acharya told CNBC’s “Squawk Box Europe” on Friday. “Look at customer support… someone still has to take the customer out for a steak dinner. So far, the AI’s not doing that. So that person is doing more customer relationship-building and less day-to-day roadwork.”
<
