The weakness could also weigh on the broader IT pack, with stocks such as Coforge, Persistent Systems, LTIMindtree, and HCLTech likely to see heightened activity. In the previous session, the Nifty IT index had already slipped nearly 2%, reflecting cautious sentiment in the sector.
The unease stems from US artificial intelligence startup Anthropic, which unveiled a new tool designed specifically for corporate legal teams earlier this month. Anthropic, the company behind the Claude chatbot, said the product is capable of automating several legal functions, including contract reviews, non-disclosure agreement triage, compliance workflows, legal brief preparation, and standardised responses.
This development has added to the already bearish sentiment surrounding software stocks, as investors increasingly worry about intensifying competition and margin pressure stemming from widespread AI adoption. Reflecting this nervousness, Wipro’s ADRs fell over 4% to close at $2.39, while Infosys ADRs declined 5.12% to end at $15.76.
Why are investors rattled?
At the heart of the market reaction is a growing concern that AI could fundamentally reshape the competitive landscape for software and IT services companies, eroding both profitability and market position.
“The fear with AI is that there’s more competition, more pricing pressure, and that their competitive moats have gotten shallower, meaning they could be easier to replace with AI,” said Thomas Shipp, head of equity research at LPL Financial, which has $2.4 trillion in brokerage and advisory assets. “The range of outcomes for their growth has gotten wider, which means it’s harder to assign fair valuations or see what looks cheap.”
Industries once considered relatively safe from AI disruption — including legal services, data analytics and customer support — are now firmly in the crosshairs. If AI can automate these functions, the massive IT services industry built around delivering them could face existential challenges.
Last week, international brokerage Jefferies was among the first to label the market reaction a “SaaSpocalypse”, noting a rapid shift in sentiment “from ‘AI helps these companies’ to ‘AI replaces these companies’.” Jeffrey Favuzza from Jefferies’ equity trading desk described the mood as outright panic. “Trading is very much ‘get me out’ style selling,” he said, according to Bloomberg.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)