The "AI substitution panic" is intensifying! Global software stocks continue to decline. JPMorgan bluntly states: the industry has reached a "pre-judged" situation.

A market panic triggered by advances in artificial intelligence (AI) technology is spreading globally, with the software sector bearing the brunt, and this downward trend shows no signs of easing on Wednesday. JPMorgan Chase stated that investor pessimism toward the sector continues to intensify.

JPMorgan analyst Toby Ogg bluntly said, “The current environment for the software sector is no longer just ‘presumption of guilt,’ but has escalated to ‘pre-judgment before trial.’”

Over the past two weeks, Ogg has spoken with more than 50 investors across Europe and the United States, discovering that these investors have significantly reduced their holdings of software stocks over the last 12 to 18 months. In a client report, he noted that even after this round of correction, market appetite for bottom-fishing in software stocks remains generally subdued.

This statement follows a collective plunge in the software, financial services, and asset management sectors on Tuesday—market concerns were sparked by AI startup Anthropic releasing a new AI automation tool, raising fears of increased competition. Investors are increasingly worried that breakthroughs in generative AI technology could threaten the survival of many companies.

According to statistics, on Tuesday, a basket of U.S. software stocks tracked by Goldman Sachs plummeted 6%, marking the largest single-day decline since the sell-off triggered by tariffs in April this year. The financial services index fell nearly 7%, the Nasdaq 100 index experienced a maximum intraday drop of 2.4%, and ultimately closed down 1.6%. The total market value wiped out across related sectors globally on that day was approximately $285 billion. The sell-off rapidly spread to Asian markets on Wednesday, while European markets continued to decline: a European companies index facing AI disruption risks, compiled by UBS, fell 8% on Tuesday and another 2.1% on Wednesday, with software giants like SAP (SAP.US) and Syntel Group seeing their stock prices continue to decline.

In fact, AI-related fears in the software industry have been brewing for months. In January, when Anthropic launched Claude Cowork, it intensified investor concerns about industry disruption; last week, Google (GOOGL.US) released Project Genie, which can generate immersive worlds from text or images, further dragging gaming stocks into the decline. To date, the S&P North American Software Index has fallen for three consecutive weeks, with a 15% decline in January—the largest monthly drop since October 2008; the iShares Expanded Tech Software Sector ETF has declined for six straight trading days, also dropping 15% in January, marking its worst monthly performance since 2008.

Ogg wrote in his report that for software companies, “outperforming expectations is no longer enough to impress the market.” Unless companies can “irrefutably demonstrate that AI is a sustainable growth driver rather than a long-term development obstacle.”

So far in the current earnings season, only 67% of software companies in the S&P 500 have exceeded revenue expectations, well below the 83% surpassing expectations across the entire tech sector. Even giants like Microsoft (MSFT.US), which posted solid earnings last week, saw its stock plunge 10% in a single day amid concerns over slowing cloud growth and AI investments, making January its worst month in over a decade.

He stated that it is not easy for software companies to break this deadlock because investor concerns involve multiple levels. Among them, the seat-based pricing model, which charges by user count, is particularly vulnerable—AI tools reduce the number of logins needed for customers to complete tasks, directly impacting this core pricing model for software companies.

Additionally, if software firms develop their own AI tools for product iteration, their existing revenue models face transformation risks. Ogg also said that any new product launches from leading AI platforms, such as Anthropic’s recent AI tool for the legal field, will further exacerbate investor worries about the software sector.