Was the AI Boom a Headwind? Software Industry Stock Prices Lagging

Although there is a boom in artificial intelligence (AI), the stock performance of the technology software (SW) industry has been lukewarm so far this year. Investors are uncertain whether AI will enhance software quality and improve industry profitability or whether the efficiency brought by AI will have adverse effects.

The price of the iShares Expanded Tech-Software Sector (IGV), an exchange-traded fund (ETF) consisting of U.S. software companies, has risen by only about 6.5% from the first trading day of the year through the close on the 18th (local time). This is a disappointing performance compared to the S&P 500 index and Nasdaq, which rose 15.6% and 20.9%, respectively, during the same period.

Technology software companies such as Salesforce (-9.5%), Adobe (-9.9%), and Workday (-22.5%) all showed a downward trend in their stock prices. These companies have introduced generative AI into their products and announced plans to actively utilize it. However, it remains unclear whether AI strategies will increase profitability. One reason is the emergence of competitors that can replace software by leveraging AI, along with improvements in quality.

There are also concerns that AI could undermine the industry's business model of Software as a Service (SaaS) in the long term. Bloomberg reported, “Since AI’s advantage lies in efficiency, it will lead to job reductions,” adding, “This could negatively impact the future growth of the software industry, which generates revenue based on the number of employees at client companies.”

Jackson Adder, an analyst at KeyBank, said, “Currently, most AI spending (by client companies) is focused on hardware or cloud infrastructure.” He also added, “Most Chief Information Officers (CIOs) are in a wait-and-see mode regarding increasing budgets for AI applications.”

This content was produced with the assistance of AI translation services.