Amidst the sharp decline in software stocks, Jensen Huang refutes the "AI replacement" theory: This is the most illogical thing in the world.

In response to the recent global sell-off of software stocks triggered by the launch of AI automation tools, NVIDIA CEO Jensen Huang explicitly refuted the notion at the San Francisco Artificial Intelligence Conference that AI will replace software tools, calling this view “illogical.”

On February 4th, Huang stated at a Cisco-hosted conference that the concern that AI will make software companies irrelevant is misleading. He emphasized that both humans and intelligent agents will choose to use existing tools rather than reinvent them, explaining that the current core breakthrough in AI lies in its “tool usage” capability. He said:

"There is a view that the tools in the software industry are declining and will be replaced by artificial intelligence… This is the most illogical thing in the world; time will prove everything.

Whether you are human or a robot, or artificial intelligence, or a general-purpose robot, will you use existing tools or reinvent tools? The answer is clearly to use existing tools… That’s why the latest breakthroughs in AI are all about tool usage because these tools are designed explicitly to perform tasks."

Before these remarks, the new automation tools launched by AI startup Anthropic had already sparked widespread market concerns about the future of the software industry, quickly turning into panic selling worldwide. The three major US stock indices fell across the board, with the sell-off spreading to Asian markets. On Wednesday, India’s IT export index plummeted 6.3%, with Infosys dropping 7.3%; in Japan, HR services company Recruit Holdings and Nomura Research Institute’s stock prices also fell 9% and 8%, respectively.

Huang pushes for rapid enterprise action

At the San Francisco AI Conference, Jensen Huang, CEO of NVIDIA, outlined his view on AI reshaping the computing industry. He pointed out that the computing industry is undergoing a “restructuring not seen in 60 years,” fundamentally shifting from “explicit programming,” where developers write specific instructions, to “implicit programming,” where users only need to state their goals, and the system autonomously plans the execution path.

Regarding enterprise practice, Huang advised management to go beyond mechanical calculations of short-term investment returns and focus on identifying the most impactful core workflows within the company, deploying AI there first. He emphasized the importance of encouraging broad experimentation, adopting a “let a thousand flowers bloom” strategy to explore multiple projects simultaneously. He also revealed that NVIDIA itself employs a diversified AI product portfolio, including Anthropic, Codex, and Gemini.

Huang once again clearly refuted the popular view that AI will simply replace existing software tools, calling it “illogical.” He compared enterprise software to screwdrivers and hammers, pointing out that even the most advanced AI systems (whether robots or digital intelligences) are reasonably suited to “use tools,” not “reinvent tools.”

Stephen Yiu, Chief Investment Officer of Blue Whale Growth Fund, commented:

“2026 will be a critical year in determining whether companies become AI winners or victims. The core investment skill is to avoid the losers. Before the industry landscape settles, standing against the AI revolution would be a dangerous move.”

Anthropic ignites AI replacement fears

The productivity tools launched by Anthropic for in-house legal teams have become the trigger for this round of sell-off.

Tracking the tech software sector, the iShares Expanded Tech-Software Sector ETF hit a daily low, falling 5.6%, marking six consecutive days of decline with a total drop of over 14% over the six days. This ETF has declined about 15% in January alone, its worst monthly performance since 2008. The S&P North America Software Index plunged 15% in January, the largest single-month drop since October 2008.

Jefferies stock trader Jeffrey Favuzza described this market reaction as “SaaSpocalypse,” noting that trading styles have shifted to panic selling regardless of price, stating:

“People are just selling everything, regardless of price.”

Even giants like Microsoft have not escaped widespread market skepticism. Despite solid quarterly earnings last week, investors remain focused on the slowdown in cloud sales growth and are re-evaluating the return on its massive AI capital expenditures, leading to a 10% single-day drop last Thursday and a further intraday decline of over 3% this Tuesday. In January, Microsoft’s stock experienced its worst monthly performance in over a decade.

The market’s pessimism is shifting from concerns about a single AI tool to a systemic reassessment of the entire software industry’s business model. Bloomberg data shows that among the S&P 500 software companies that have reported earnings this quarter, only 67% beat expectations, well below the 83% industry-wide beat rate. Investment firm Piper Sandler downgraded ratings for several software companies including Adobe, Freshworks, and Vertex this week. Analyst Billy Fitzsimmons expressed concern that:

“Market compression and the ‘mood coding’ narrative could set a ceiling on industry valuation multiples.”

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