Is it time to log out from old-school software program corporations?

Does a ‘SaaSpocalypse’ loom, or has the alarm been overdone? That’s the question that investors are asking themselves after $1 trillion was wiped off the shares in various SaaS – software-as-a-service – companies in just one day earlier this month.

The share price slide is being caused by fears that the rise in artificial intelligence (AI) could inflict huge damage not only on software companies, but also on those in the information service sector.

Jensen Huang, boss of the chip giant Nvidia, may view this scenario as ‘the most illogical thing in the world’.

Yet the rout has continued in recent days, its latest victims including Dassault Systemes, the French software group.

Dassault shares tumbled by 21 per cent on Wednesday, despite the promise from chief executive Pascal Daloz that the company ‘will lead the industrial AI transformation’.

This decline followed the fall in shares of the UK price-comparison websites Mony, owner of MoneySupermarket, and Future, which owns GoCompare.

Concern is growing that they will be damaged by the arrival of Insurify. This US platform deploys the ChatGPT AI system from the Californian start-up OpenAI to find better car insurance deals. Insurify’s chief executive Snejina Zacharia, who set up the company when her own motor premiums were raised, this week said: ‘We’re redefining the insurance shopping experience by making it feel as simple as having a conversation.’

Shares in Charles Schwab, St James’s Place and other US and UK wealth managers also suffered. The view is that clients could prefer cheaper offers, such as that from Altruist, a US start-up that relies on AI to devise financial-planning strategies.

SaaSpocalypse angst was initially sparked by the decline in the major software names such as Sage. Also hit was Relx whose activities include legal analytics and London Stock Exchange Group, which has an extensive data division.

US corporations such as AppLovin, LegalZoom, Oracle and Salesforce were also caught up in the maelstrom.

Behind these declines lay the announcement of new updates to Claude, the AI system from the San Francisco-based start-up Anthropic. Claude has been described as ‘a more cerebral version of ChatGPT’.

Michael Brown, an analyst at broker UBS, summed up the mood of uncertainty: ‘We’re in this moment where we don’t really know what the next 12 or 24 months will bring.’

Against this backdrop, it may be tempting to shrug your shoulders at the volatility. After all, Huang contends that AI systems will improve rather than displace software products. He said: ‘Would you use a screwdriver or invent a new screwdriver?’

It may be too soon to discern who will be the winners and losers from this latest instance of how AI will change the world. But it is not too early to monitor the impact on your portfolio.

THE AI THREAT

If you backed the Magnificent Seven US tech shares – Google owner Alphabet, Amazon, Apple, Facebook parent Meta, Microsoft, Nvidia and Tesla – you have largely been a beneficiary of their focus on AI. ‘SaaSpocalypse’ is an alert to AI’s potentially precipitous downside.

Jason Hollands of Bestinvest points out that just a year ago it was thought that software and information service companies would prosper from AI’s ascent.

He said: ‘It’s a lesson that for investors, AI is both an opportunity and a threat to portfolios – not a one-way bet.’

The price falls may have turned some software stocks into bargains. Analysts consider both Relx and London Stock Exchange to be ‘buys’, for example. This week Erik Engstrom, Relx’s boss, assured shareholders that it was ‘almost inconceivable’ that AI could replicate its offer, which is already enhanced by AI.

London Stock Exchange shares stand at 7,570p, but Barclays has set a target price of 12,000p, in the wake of news that US activist investor Elliott has taken a stake in the company. Sage is rated a ‘hold’. But investing in these stocks now is only for the adventurous, as it may be too early to sort the winners from the losers.

The rivalry from AI seems set to depress the fees that software companies can charge so lowering their profits.

But, as the US broker Wedbush Securities argues, companies that have spent billions on software infrastructure may be reluctant to sever links with existing providers as this could endanger their data.

If you hold the popular trust Finsbury Growth & Income you are particularly exposed to software and information-service companies. The trust’s portfolio contains Auto Trader, credit-analytics business Experian, London Stock Exchange, Rightmove and Sage. But Nick Train, the trust’s manager, says that these incumbent companies will be mobilising to supply AI-enhanced services to their clients. And some software companies are doing just that. Cloudflare, a US group, has created AI Crawl Control, which helps media companies, keen to protect their subscription income, manage how AI systems scrape their website content. If you are in the mood for a bet, one analyst has set a $300 target for Cloudflare shares which are trading at around $190.

THE AI OPPORTUNITY

OpenAI, where Sam Altman is chief executive, is poised to make its stock market debut this year with a possible valuation of $830billion, (£610billion) thanks to the popularity of ChatGPT which has 800m users.

Anthropic, led by ex-OpenAI executive Dario Amodei, is also poised to float with a likely $350billion (around £257billion) price tag.

Fortunately for investors like me, the Scottish Mortgage Investment Trust bought a slice of Anthropic late last year. This appears a wise move, given the acclaim that surrounds Claude, whose tools enable customers to produce and use software – a process that has traditionally required extensive technical skills. The latest Claude ‘plug-ins’ or updates included a legal service that allows contracts to be drawn up and reviewed quickly and easily.

Another set of updates automates tasks in a company’s advertising, marketing and sales departments. As a result of these updates, Anthropic is now regarded as one of the four most valuable private companies in the world. Revenues in 2025 were $9billion (£6.6billion), with about $30billion (£22billion) expected this year.

Altman and Amodei may be rivals, but these billionaires are united in anxiety over the fallout from the explosion in AI.

In a 19,000-word essay published last month, Amodei wrote: ‘Humanity is about to be handed almost unimaginable power, and it is deeply unclear whether our social, political, and technological systems possess the maturity to wield it.’

The essay was meant as a wake-up call and you should use it as a signal to monitor the impact of AI on your portfolio since ‘SaaSpocalypse’ may only be the start.