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AI-Driven Selloff Signals Major Valuation Reset in Software Sector
The recent selloff in global software stocks represents a real-time repricing of the sector in the age of artificial intelligence, according to Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory organisations.
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Green’s assessment follows the launch of a new AI automation tool by Anthropic, which triggered a sharp market reaction and wiped an estimated $285 billion off the market value of leading software companies.
Not Fear of AI, But Pricing Power Under Pressure
Nigel Green argues that the market reaction is not driven by fear of AI itself, but by growing doubts over what software companies can realistically charge in an AI-first economy.
“The selloff is not about fear of AI — it’s about what software businesses can realistically charge in an AI-first world. When AI agents can perform legal review, data analysis, research and compliance instantly, subscription-heavy models lose pricing leverage,” Green said.
According to him, investors are reassessing long-held assumptions around recurring revenues as AI rapidly reshapes how value is created and delivered.
Margins, Not Innovation, Now the Battleground
The speed and scale of the declines highlight how abruptly investor sentiment has shifted. Software companies once prized for predictable subscription income, entrenched workflows and information advantages are now being judged by a new metric: how defensible their revenues remain when AI can replicate outputs faster, cheaper and with minimal friction.
Green noted that the sharp falls reflect a market acknowledgement that profit margins—not innovation—are now the primary battleground.
AI Challenges the Scarcity Value of Software
Markets are increasingly questioning whether software firms built on information resale, process automation or labour substitution still possess meaningful scarcity value.
Tasks that once justified premium pricing and long-term contracts are now being compressed by AI systems capable of delivering comparable results in seconds. As a result, the traditional logic underpinning software valuations is coming under sustained pressure.
A Fundamental Shift in Technology Risk Assessment
Green describes the current correction as a fundamental shift in how investors assess technology risk. The long-standing assumption that digital products naturally enjoy durable pricing power is being challenged as AI strips complexity out of workflows.
“This 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.
Winners and Losers in the AI Economy
According to Green, markets are now drawing a clear line between companies that control AI economics and those that merely integrate AI to defend legacy business models.
“The former can potentially expand margins, while the latter risk seeing cost savings passed directly to clients. Markets are penalising firms that rely on legacy platforms, high headcount or process-heavy models that can be bypassed entirely,” he explained.
Falling Switching Costs Add to Valuation Pressure
Another major drag on software 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 increasingly difficult to monetise.
Green added that AI is compressing value chains and concentrating returns, allowing a small group of firms to capture outsized gains while many others struggle to defend pricing power.
Investors Move Faster Than Earnings Cycles
“AI removes the insulation that once protected software margins. What looked like stable, recurring revenue is increasingly exposed. Investors aren’t waiting for earnings warnings or guidance updates. They’re repricing now, because AI accelerates disruption faster than quarterly results can capture,” Green concluded.
