Software juggernauts’ AI nightmare has begun

It did not take Christian Klein long to address the AI-shaped elephant in the room.The boss of SAP, the accounting software giant, had just watched his company’s shares plunge in a rout that would dethrone it as Germany’s most valuable listed business.SAP lost €38.7bn (£33.6bn) of value on Thursday after announcing a slowdown in cloud computing revenues. Shares fell by more than 16pc on their worst day in more than five years as investors fretted that the slip was a sign of things to come.“I know there is a general concern out there in the market about, ‘Oh, how will software sustain in the world of AI?’” Klein told investors on a call on Thursday. “Cannot everyone code software?”Klein’s answer was “clearly no”, claiming customers were frequently hitting a “roadblock” as they tried to use AI to build their own code – but so far he is struggling to convince the market.It is not just SAP. Across Europe, software giants at risk of seeing their business eaten by AI are under pressure.FTSE 100-listed Experian has suffered a 34pc plunge in shares since hitting its own all-time peak in July, over worries that AI will automate the process of gaining credit scores.London Stock Exchange Group (LSEG), which bought data and analytics company Refinitiv in 2021 for $27bn (£19.7bn), has declined 32pc from its peak last February as investors worry ChatGPT and similar services will be able to do the same job.RELX, the FTSE 100 data analytics company, has slumped 37pc from its record high a year ago. It was down more than 11pc this week, marking its worst performance since the onset of the pandemic in 2020.For some tech companies developing AI, it has been a godsend. Just look at Nvidia’s share price. But for a certain subset, the technology poses a major threat.Why pay a subscription fee for accounting software when an AI bot can crunch the numbers for you? Do you really need an analytical programme when a chatbot can do the same work?“There are some genuine concerns that AI investments will eat the software companies’ lunches,” said John Praveen, of investment manager Paleo Leon.Companies at risk are now racing to integrate AI into their platforms and convince investors they are riding the wave, not being wiped out by it.Brian Cassin, the chief executive of Experian, told analysts earlier this month that the company was “progressing our plans to embed AI more deeply across our platforms”. Cassin said its consumer services business was “increasingly supported by EVA, our agentic AI assistance”, with sales up 8pc in the most recent quarter.However, it was not enough to avoid a drop of nearly 9pc in Experian’s share price over the last week, seeing it fall to a new two-year low. Arthur Truslove, of Citigroup, said: “The stock has been weak as Experian has been considered to be an artificial intelligence loser.”The week’s fall prompted the company to announce a new $1bn share buyback programme on Friday, giving some brief relief and a 3pc boost to its valuation. Analysts at investment bank Stifel called it a “sensible reaction to recent share price weakness”.Some believe the sell-off across the software sector has been overblown. Enrico Bolzoni, an analyst at JP Morgan, said the slump in LSEG’s share price was “unwarranted” and insisted: “AI represents an opportunity for LSEG over the near and medium term, and not a threat.”Nay Soe Naing, of German private bank Berenberg, said after SAP’s plunge on Thursday that he did not believe the “modest miss” to revenue forecasts “justifies the severity of the negative share price reaction”. He urged investors to buy the stock, saying AI offered a chance to “upsell and cross-sell”.Some investors clearly heeded his call, with SAP up more than 3pc on Friday.Yet with software company share prices still deep in the red when looked at over the last year, executives face an uphill battle to convince the market that AI will not signal the death knell for their business.