Bridgewater Associates cautioned clients that advances in artificial intelligence pose a fundamental threat to incumbent software companies, drawing a comparison to how Amazon upended traditional bookstores in the 1990s. The firms three co-chief investment officers - Bob Prince, Greg Jensen and Karen Karniol-Tambour - said in a client note that the recent release of Claude Code introduces material risk for large software businesses.
The warning arrives as software stocks have encountered intense selling pressure. According to Bridgewater, the S&P 500 Software and Services Index has declined 16.6% so far this year as investors reassess the outlook for established application vendors in light of newly released AI models.
Certain subsectors have been hit especially hard. Bridgewater highlighted declines in several prominent companies: Salesforce is down 33% year-to-date, Adobe has fallen 30%, ServiceNow has dropped 41%, Intuit has declined 37.5%, and HubSpot is lower by 39%.
In their note, the three executives said markets are beginning to price in the threat to application software firms and that companies will face a choice - either co-evolve with AI capabilities or risk disruption. The note framed the situation as a structural challenge for legacy software business models rather than a short-term market blip.
Labour market effects are already apparent across industries. The client note observed rising rounds of layoffs from sectors including large technology firms and financial services, with employers citing cost savings achieved through AI adoption as a factor behind job cuts.
Bridgewaters view extended beyond technology to geopolitics and commodities. The firm warned that ongoing geopolitical turmoil could continue to unsettle markets and commodity supplies. Specific U.S. actions in Venezuela, Greenland and Iran were singled out as potential accelerants of strains within the U.S.-led alliance system, according to the note.
Shipments transiting the Strait of Hormuz - which handles about one fifth of global energy flows - remain subdued as efforts to de-escalate tensions with Iran have stalled, the note said. Bridgewater concluded that the resulting commodity shock will persist for some time, contributing to shortages and inflationary pressure.
Brief takeaways
- Bridgewater views AI developments, exemplified by Claude Code, as creating existential pressure on legacy software providers.
- Software equities have been sold aggressively this year, with significant year-to-date declines in major enterprise and creative software names.
- Rising layoffs and persistent geopolitical disruptions are additional factors cited by the firm that may influence markets and commodity flows.