Global tech stocks, along with Indian peers, crashed after Anthropic's launch of a legal AI tool retriggered concerns around rising competition. Analysts have commented on what excatly is bothering the software stocks today.
The sharp fall in the share prices pushed the Nifty IT index down more than 7 percent to hit an intraday low of 35,809.50 on Wednesday. The index then pared some losses to close at 36,345.65.
Heavyweight Infosys shares plunged more than 8 percent earlier during the day, before closing over 7 percent down in the red. LTI Mindtree and Coforge shares, which also dropped 8 percent intraday, fell around 6 percent at close.
Tata Consultancy Services (TCS) shares closed 7 percent lower, while Persistent Systems, Mphasis and HCL Technologies shares fell 6 percent. Tech Mahindra and Wipro shares fell around 4 percent each.
'Nowhere to hide,' says JP Morgan:
JPMorgan in its latest report noted that the software collapse has broadened with "nowhere to hide" as the AI rate-of-change has extrapolated in both “logical and illogical ways”. “The software selloff has intensified and broadened in a particularly jarring manner today…One very noticeable difference in recent weeks is that the impact is very broad, spanning across mega cap to small cap and fully impacting names that have been viewed as carrying lower AI disruption risk,” it said.
Indeed, Indian IT stocks earlier had remained resilient during previous tech selloffs on AI threats. However, the stocks today lost steam and crashed amid rising worries of AI intensifying competition.
“We call it the ‘SaaSpocalypse,’ an apocalypse for software-as-a-service stocks,” Bloomberg quoted Jeffrey Favuzza, who works on the equity trading desk at Jefferies, as saying. “Trading is very much ‘get me out’ style selling,” the analyst added.
“This is especially worrying for software companies as it has the potential to decimate their models with AI likely able to fully replace traditional workflow lock-in SaaS products,” the report further quoted Ortus Advisors analyst Andrew Jackson as saying.
From an analytical standpoint, the emerging consensus among market observers is that AI-related concerns around Indian SaaS and IT services companies are not misplaced, even if they are being unevenly priced across the sector, said Bhavik Joshi, Business Head, INVasset PMS.
"The current anxiety is rooted in the rapid evolution of general-purpose AI agents capable of executing workflows end-to-end, which raises legitimate questions around the durability of effort-based revenue models and the need for multiple software layers. This has prompted investors to reassess long-duration growth assumptions, particularly for business models dependent on linear headcount scaling, narrow workflow automation, or feature-led differentiation,” the analyst explained.
In this context, Indian technology firms with meaningful exposure to application maintenance, testing, support services, and basic SaaS workflows such as document processing, ticket management, or rule-based compliance appear more vulnerable to pricing pressure, licence rationalisation, and slower volume growth as enterprises experiment with AI-led productivity tools, he said.
While analysts caution against extrapolating this risk across the entire technology ecosystem, they also acknowledge that the transition could be more disruptive for Indian IT than prior cycles of automation or cloud adoption, Joshi said. He explained this is because of the speed at which AI capabilities are evolving.
“Importantly, enterprise behaviour suggests budget reallocation rather than outright withdrawal, but this reallocation is increasingly biased toward outcomes, speed, and platform efficiency rather than incremental manpower deployment,” he added.
This dynamic is likely to compress billing rates, shorten deal cycles, and weigh on near-term earnings visibility—factors that equity markets tend to penalise aggressively, according to Joshi. “The prevailing view is that current volatility reflects a time-horizon mismatch, where long-term structural risks are being discounted into near-term valuations before new operating models are fully proven. For Indian IT stocks, this phase is less about loss of relevance and more about margin, growth, and multiple pressure during a prolonged adjustment, suggesting that the risk-reward may remain skewed to the downside until clearer evidence of adaptation emerges,” he concluded.
The stock market is becoming very negative about the prospects of SaaS companies in the AI-assisted Code era, said Sridhar Vembu, Fourder and CEO of SaaS firm Zoho. "Well before the AI revolution, I have said SaaS industry is ripe for consolidation. An industry that spends vastly more on sales and marketing than on engineering and product development was always vulnerable. The venture capital bubble and then the stock market bubble funded a fundamentally flawed, unsustainable model for too long. AI is the pin that is popping this inflated balloon," he wrote on X.
"Can Zoho survive the AI wave? It depends on our ability to adapt. I always ask our employees to calmly contemplate our death. When we accept that possibility, we become more fearless and that is when we can calmly chart our course," he said.
The stock market is becoming very negative about the prospects of SaaS companies in the AI-assisted Code era. Well before the AI revolution, I have said SaaS industry is ripe for consolidation. An industry that spends vastly more on sales and marketing than on engineering and… https://t.co/JHhodD4VPo— Sridhar Vembu (@svembu) February 4, 2026
Wall Street ended yesterday's session sharply lower as investors remained concerned that AI was creating more competition for software makers, after Anthropic’s launch of a legal tool for its Claude AI chatbot.
AI developer Anthropic launched plug-ins for its Claude Cowork agent last week that can automate tasks across legal, sales, marketing and data analysis. The move has triggered worries of an impending AI-fueled disruption of the data and professional services industry, which were once seen as major beneficiaries of the AI era, according to traders and analysts.
“Anthropic launched new capabilities for its Cowork to the legal space, heightening competition,” Morgan Stanley analysts including Toni Kaplan wrote in a note on Thomson Reuters, as reported by Bloomberg. “We view this as a sign of intensifying competition, and thus a potential negative," they said.
AI heavyweights Nvidia and Microsoft saw their share prices fall almost 3 percent each, while Alphabet dropped 1.2 percent ahead of its results on Wednesday. Amazon shares declined 1.8 percent ahead of its Thursday results. Salesforce and Adobe fell around 7 percent each. Freshworks shares crashed 10 percent.
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