Tech stocks experienced continued volatility on Wednesday as Wall Street grapples with fears that artificial intelligence will replace traditional software companies—a concern that Nvidia CEO Jensen Huang publicly dismissed as “illogical” during a Cisco AI event this week.
The tech-heavy Nasdaq Composite and S&P 500 extended their losses from Tuesday’s trading session, with the software sector bearing the brunt of the sell-off. The iShares Expanded Tech-Software Sector ETF plummeted nearly 4% on Wednesday, adding to its already substantial year-to-date loss of 22%. Over the past year, the ETF has declined nearly 20%, and the software sector officially entered bear market territory last week.
Amid this market turbulence, Jensen Huang, CEO of AI chip giant Nvidia, offered a contrarian perspective on the software industry’s future. Speaking at a Cisco AI event on Tuesday, Huang directly addressed investor concerns about AI’s potential to disrupt traditional software companies. “There’s this notion that the tool industry is in decline and will be replaced by AI,” Huang stated, calling it “the most illogical thing in the world.”
Huang’s thesis centers on the idea that software serves as a tool for AI to utilize rather than replace. According to the Nvidia CEO, AI systems will leverage existing software tools and capabilities rather than reinventing them from scratch. He specifically highlighted several companies as bright spots in the software space, including ServiceNow, SAP, Cadence, and Synopsys—suggesting these firms are well-positioned to thrive in an AI-driven future.
The market sell-off reflects a broader rotation away from technology stocks, with several prominent software and tech companies experiencing significant declines during Wednesday’s trading session. Palantir dropped 7.5%, while Applovin suffered a steep 16% decline. Unity Software fell 9%, and Hut 8 Corp. declined 11%—all contributing to the iShares Expanded Tech-Software Sector ETF’s downward pressure.
This market anxiety comes as investors reassess the relationship between AI advancement and traditional software business models, questioning whether AI represents an existential threat or a complementary technology for established software companies.
Key Quotes
There’s this notion that the tool industry is in decline and will be replaced by AI. You could tell because there’s a whole bunch of software companies whose stock prices are under a lot of pressure because somehow AI is going to replace them. It is the most illogical thing in the world and time will prove itself.
Nvidia CEO Jensen Huang made this statement at a Cisco AI event on Tuesday, directly challenging Wall Street’s fears about AI disrupting traditional software companies. As the leader of the company powering much of the AI revolution, Huang’s perspective carries significant weight in shaping investor sentiment.
Software is a tool for AI to use, rather than replace.
Huang articulated his core thesis about the relationship between AI and software, explaining that AI systems will leverage existing software capabilities rather than making them obsolete. This framework suggests a complementary rather than competitive relationship between AI and traditional software.
Our Take
Huang’s intervention represents a fascinating moment where an AI industry leader attempts to calm market fears his own technology has created. There’s inherent irony in the CEO of the company enabling AI disruption arguing that disruption won’t extend to software—yet his logic is sound. AI systems require infrastructure, tools, and platforms to function effectively, which is precisely what enterprise software provides.
The 22% decline in software stocks may represent an overcorrection driven by fear rather than fundamental analysis. History shows that transformative technologies typically augment existing industries before replacing them entirely. The companies Huang endorsed—ServiceNow, SAP, Cadence, and Synopsys—are already integrating AI into their offerings, positioning themselves as enablers rather than victims of the AI revolution. This market volatility likely presents both risk and opportunity, depending on which software companies successfully adapt their business models to an AI-enhanced future.
Why This Matters
This story highlights a critical inflection point for the technology sector as investors grapple with how AI will reshape the software industry. Huang’s comments from one of AI’s most influential figures carry significant weight, potentially stabilizing investor sentiment around software stocks that have been battered by fears of AI disruption.
The 22% year-to-date decline in the software sector represents billions in lost market value and reflects genuine uncertainty about business models in an AI-dominated future. If Huang’s thesis proves correct—that AI will augment rather than replace software—it could signal a buying opportunity for investors who have fled the sector.
For businesses, this debate has profound implications for strategic planning and investment decisions. Companies must determine whether to view AI as a competitive threat or an enhancement to their existing offerings. The software firms Huang specifically endorsed—ServiceNow, SAP, Cadence, and Synopsys—may serve as case studies for how traditional software companies can successfully integrate AI capabilities.
This market volatility also underscores the broader challenge facing Wall Street: accurately pricing the transformative impact of AI without succumbing to either excessive hype or unwarranted pessimism about established technology sectors.
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