Software Apocalypse? Taking Stock of AI Threat for Software
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Key Views
Current RPO growth remains robust across major names: Adobe at 13.1%, Salesforce at 13.5%, ServiceNow at 22.7%, Workday at 15.4%, and SAP cloud backlog up 25%. SAP, ServiceNow, Salesforce, and Oracle all maintain multi-year revenue guidance signaling continued double-digit expansion. Customer retention stays strong, with ServiceNow renewal rates at 97%, Autodesk net retention above 110%, Salesforce churn near 8%, and SAP annual churn around 3%. No pricing pressure is evident.
AI-driven productivity gains remain modest, with cost savings at only 5–7.5% of the cost base and AI coding tools delivering 100–500 bps of improvement at most. Software companies are actively repurchasing shares; excluding Salesforce, Oracle, and Microsoft, buybacks rose over threefold versus 2023–24 levels.
Outlook
Software equities have corrected sharply on AI fears, with P/NTM non-GAAP EPS roughly 50% below the 24-month average. HSBC views this selloff as an overreaction, noting that AI is unlikely to replace software. The firm maintains Buy ratings on major software companies, suggesting valuations may recover if AI disruption risks are disproven.
Recommended Securities
No specific tickers were listed, though Buy ratings were reaffirmed across major software names.