In a striking warning, a leading fund manager has signaled that artificial intelligence could spell doom for application software companies, prompting a major shift in investment strategy.
Polar Capital fund manager Nick Evans, whose $12 billion global technology fund has outperformed 99% of peers over one year, told Bloomberg that AI poses an “existential threat” to application software, leading his firm to sell nearly all holdings in the sector.
According to the New York Post, Evans highlighted the rapid advancement of AI tools, noting their growing power. He also pointed out that current market prices fail to account for long-term uncertainties in the software industry.
This warning comes amid significant declines in software stocks. An exchange-traded fund tracking the US software sector has fallen more than 22% so far this year.
Industry leaders like Salesforce and ServiceNow have seen drops of 25% and 27%, respectively. These declines reflect broader fears that AI could automate key functions of application software.
Evans’ fund has shifted focus, increasing holdings in infrastructure software firms like Cloudflare and Snowflake as of January. He remains neutral on cybersecurity software, which he believes faces no immediate AI-related risks.
Evans didn’t mince words, advising investors to be “significantly underweight application software.” He stressed the need for quick action as AI models improve rapidly.
Not all software firms face equal risk, according to Evans. He suggested that companies like SAP might prove more resilient during this market shift. However, Evans remains skeptical of most software stocks. He told Bloomberg the fund “won’t go back to these companies” anytime soon.
The issue has sparked intense discussion on Wall Street. While some fear long-term disruption, others see potential for recovery in select stocks.
Last week, JPMorgan Chase strategists offered a more hopeful outlook. They suggested that stocks like Microsoft and ServiceNow could rebound after recent extreme price movements.
Evans, however, sees a painful reckoning ahead for many firms. He compared the coming shift to the internet’s devastating impact on print media in the 2000s.
For investors, this debate underscores a critical turning point. Software, once a safe tech bet, now faces uncharted risks from AI innovation.
Evans’ fund, which beat 97% of peers over five years, offers a potential roadmap. With seven of its top 10 positions in semiconductor firms and nearly 10% in Nvidia, it’s leaning into AI infrastructure over applications.
What’s the takeaway for wealth-builders? Consider pivoting toward sectors enabling AI rather than those threatened by it, and stay nimble—market shifts wait for no one.