Software stocks play the "oversold" tune! Panic selling creates buying opportunities at lows, but divergence will become increasingly apparent

The Wall Street Financial APP has learned that investor concerns over the disruptive potential of artificial intelligence (AI) continue to ferment. Last Friday’s bottoming and corrective rebound in software stocks was followed this week by another wave of large-scale sell-offs. Byron Deeter, a partner at the well-known Wall Street investment firm Bessemer Venture Partners, believes that the current intense sell-off and turbulence in global stock markets, especially in U.S. software stocks, presents a rare “buy-the-dip” opportunity for investors. He also claims that the software and SaaS-related sectors are “absolutely in a severely oversold state.” Despite the sharp decline again this week, Deeter still thinks the market chaos is creating favorable profit opportunities for savvy investors.

In an interview with the media on Thursday, Deeter compared the current potential V-shaped recovery trajectory to similar rebound patterns seen during the COVID-19 pandemic and the global financial crisis. However, he warned that this recovery will fundamentally be different, predicting a “huge divergence” among software companies with different growth prospects and fundamentals, rather than a uniform market-wide bottoming and rebound.

Deeter stated that investors’ attitudes toward software companies have shifted to suspicion, viewing them as “guilty until proven innocent.” He emphasized that the stock market is currently in a “show me the money” mode, with investors increasingly tired of the ambitions around “AI + software” and the huge AI-related spending commitments. Before tech giants like Amazon are willing to continue pouring large sums of money, investors want to see clear profitability and accelerating revenue growth.

Deeter clearly distinguished between companies facing horizontal attack vectors and large software firms with defensible business models. He believes that companies focused on specific functions and tools, such as Asana (ASAN.US), DocuSign (DOCU.US), and Adobe (ADBE.US), are more vulnerable to being thoroughly disrupted by proxy AI agents. Conversely, he pointed out that “systems of record” and vertical industry companies like Shopify (SHOP.US) and ServiceTitan (TTAN.US), due to deep payment integrations and specialized market positioning, are in a better position. Platform giants like Microsoft and SAP, which focus on “AI + core operational processes” and have strong fundamentals, are in the best position.

Deeter also sees consumer market platform companies as another resilient category. He mentioned Airbnb (ABNB.US) and StubHub (STUB.US), which have network effects through market demand aggregation, and because AI agents are “somewhat irrelevant” to their core features, they are likely to avoid severe disruption from AI.

Looking ahead, Deeter believes the next wave of strong growth related to the software industry will come from the private equity market. Software companies that stand to benefit significantly from AI-driven performance acceleration—such as Databricks, ClickHouse, and Canva—are expected to become potential large IPO candidates. He describes this trend as part of an emerging “software renaissance,” which will gradually manifest in IPO markets over the next few years.

As software stocks are heavily sold off, the narrative of “AI reshaping software profitability” is quietly spreading

For global software investors, leading AI applications in “AI + digital advertising,” such as Applovin (APP.US), have responded strongly to short-sellers with robust performance, proving that the market’s doom-and-gloom predictions fueled by the rise of proxy AI agents like Anthropic are exaggerated. The market has completely mispriced the fundamentally strong platform giants focused on “AI + core operational processes” during this massive sell-off.

While proxy AI agents targeting “automatable white-collar tasks” do pose valuation impacts (hence the market’s systematic cut of functional SaaS sectors), for large platform companies managing “data streams/content distribution/trade execution,” AI acts more as a demand accelerator. Proxy AI agents will indeed erode the moat of shallow functional tools but will also enhance the value of those with deep data assets, closed-loop operational platforms, billing/payment and compliance controls, and APIs that can be reliably called upon.

The recent “Software-mageddon” sweeping global stock markets has been driven by a series of AI tools and proxy AI agent collaboration platforms launched by Anthropic, a notable rival to OpenAI. This has triggered widespread sell-offs across SaaS subscription sectors and the broader software market. Under this severe concern, the S&P 500 Software & Services Index has fallen about 13% since late January, wiping nearly $1 trillion in market value last week alone. This week, AI disruption fears hit various sectors like software, SaaS, private equity, insurance, property management, and logistics, with each sector experiencing significant declines. Investors are rapidly selling off potential “losers.”

This panic-driven sell-off in software stocks essentially discounts market expectations of AI proxy potential: as Anthropic and other AI startups introduce more powerful workflow proxies and demonstrate “end-to-end automation” in legal and sales scenarios, investors quickly worry that traditional subscription software will be replaced by “one proxy + a few AI tools,” leading to indiscriminate revaluation. Deeter from Bessemer calls this “absolute overselling,” but emphasizes that future rebounds will not be uniform but will show significant differentiation.

Consequently, the market is gradually pricing in an AI growth narrative for software companies: when AI significantly boosts efficiency and reduces marginal decision-making costs, platform giants like Microsoft, Oracle, ServiceNow, and SAP may experience positive feedback in throughput and unit economics, rather than being completely replaced.

If a software company can turn the proxy wave into incremental growth—by using proxies as new entry points, creating billable calls/automation quotas, or embedding efficiency gains into higher retention and expansion—and if its business has high switching costs, strong compliance constraints, deep integration into core processes, then overselling often creates better risk-reward opportunities. Conversely, if a product mainly offers point functions that can be easily replaced by general-purpose proxies, and its business model heavily depends on seat counts without deep integration into data and processes, then this may only be the beginning of valuation reversion rather than a one-time mispricing. Some investors, like Bessemer Venture Partners, see this decline as an overreaction and prefer to focus on leading platform companies for structural positioning.