Fears that artificial intelligence (AI) will rapidly disrupt software companies have been overdone, according to JPMorgan. The bank’s strategists believe parts of the sector are more resilient than believed, creating a potential opportunity for investors.
“Given the positioning flush, overly bearish outlook on AI disruption of software and solid fundamentals, we believe the balance of risks is increasingly skewed towards a rebound,” said Dubravko Lakos‑Bujas, Head of Global Markets Strategy.
In a recent note, the team said markets are pricing in near-term AI disruption at levels that appear unrealistic. The strategists argue that the “extreme price action” in software stocks has created conditions for a possible rotation back into the sector, particularly toward higher-quality names that are more resilient to AI-related changes.
The Magnificent 19
The bank highlighted companies such as Microsoft Corporation (NASDAQ:MSFT) and CrowdStrike Holdings, Inc. (NASDAQ:CRWD) as AI-resilient. It sees these businesses as positioned to benefit from AI-driven workflow improvements. Meanwhile, they have a moat around their enterprise customer bases, as high switching costs and multi-year contracts reduce the risk of sudden disruption.
The bank sees 17 other software companies relatively resistant to AI disruption. These include Twilio Inc. (NYSE:TWLO), Okta Inc. (NASDAQ:OKTA), ServiceNow Inc. (NYSE:NOW), Palo Alto Networks Inc. (NASDAQ:PANW), Zscaler Inc. (NASDAQ:ZS), Check Point Software Technologies Ltd. (NASDAQ:CHKP), SentinelOne Inc. (NYSE:S), Snowflake Inc. (NYSE:SNOW), Datadog Inc. (NASDAQ:DDOG), Veeva Systems Inc. (NYSE:VEEV), Guidewire Software Inc. (NYSE:GWRE), CoStar Group Inc. (NASDAQ:CSGP), Tyler Technologies Inc. (NYSE:TYL), JFrog Ltd. (NASDAQ:FROG), SailPoint Inc. (NYSE:SAIL), Netskope Inc. (NASDAQ:NTSK), and Q2 Holdings Inc. (NYSE:QTWO).
Under Pressure
Software shares have come under pressure in recent weeks after new AI tools sparked concern that traditional software-as-a-service businesses could be disrupted. The selloff intensified after fresh model releases from AI developers raised the prospect of systems that can perform tasks, such as coding, data analysis, and expense tracking, that overlap with existing enterprise software functions. The decline pushed the sector into oversold territory, with the S&P software index entering a bear market.
According to JPMorgan’s Global Investment Strategist Kriti Gupta, the selling has been too broad.
“The market is selling indiscriminately,” she said, clarifying that even companies expected to benefit from AI infrastructure demand have fallen alongside software names.
Gupta argues the reaction may reflect a repricing driven by fears that agentic AI could one day make certain software products obsolete. However, she also points to a key countertrend: corporate adoption of AI is already improving profitability.
Companies using AI in the S&P 500 have seen net margins expand by roughly 2 to 3 percentage points more than peers and the index overall, suggesting the technology is already delivering productivity gains.
Price Watch: State Street SPDR S&P Software & Services ETF (NYSE:XSW) is down 20.58% year-to-date.
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