Since the debut of OpenAI's ChatGPT, investors and analysts have been scratching their heads, trying to predict just how severely the spread of artificial intelligence (AI) systems could upend the world as we know it. The common view is that the disruption could be immense.
However, every bear and bull market typically needs a spark. AI itself has had many ups and downs, such as the emergence of China's DeepSeek, an AI chatbot that rivaled ChatGPT and allegedly required only a fraction of the resources to develop and train. However, there is wide disagreement about how much DeepSeek actually spent to develop its chatbot, and AI stocks have bounced back from the plunge they experienced after it hit the scene. They have, though, experienced many ebbs and flows.
Recently, the emergence of Anthropic's Claude Cowork, an agentic AI tool, has led investors to dump shares of companies in the software sector, which not long ago was a market darling. Selling pressure has been intense. Is the arrival of Claude Cowork the software industry's DeepSeek moment?
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What is Claude Cowork?
Claude is Anthropic's AI chatbot, and it rivals ChatGPT in popularity. While the two have their differences -- one being that Claude is viewed as the better chatbot for business work -- they are largely seen as peers, with ChatGPT still having the edge in terms of weekly active users and valuation.
Recently, Claude introduced Cowork, an agentic AI tool that Anthropic believes will change the way people work and conduct their daily digital lives. Claude can execute non-coding tasks on your computer and within specific files. Using the Cowork desktop app, users can provide the tool with access to certain files and folders and then prompt Claude to complete tasks.
Now, it's still early, but, according to its website, some of Cowork's capabilities include creating a daily briefing that pulls from data from Slack, Notion, and GitHub; conducting research and analysis and create PowerPoint presentations and Excel workbooks; and aggregating customer feedback from a variety of data sources, including customer relationship management systems, transcripts, and more.
Cowork can also help manage legal documents by consolidating many lawsuit documents into a chronological set of exhibits. Several legal tech stocks sold off significantly once this capability came to light.
Why Claude Cowork is a problem for software
The obvious answer is that Claude Cowork can, in theory, handle many different workflow tasks done previously by people or software solutions, challenging many business software models. Additionally, investors probably assume this is just the tip of the iceberg. If Claude Cowork can already complete simple tasks like these, what will it be able to do in a year? Or three?
However, perhaps the biggest threat of all this is that, even if Claude Cowork is not an immediate or terminal threat to many software companies, its arrival signals the start of what's likely to be much more competition in the space, which will hurt companies' margins and therefore decrease valuations. In that light, the intense selling may also be driven by a valuation reset in the sector.
Is this Software's DeepSeek moment?
I certainly see some similarities. The emergence of a new AI tool is triggering a widespread sector sell-off. But investors should remember that AI stocks also rebounded significantly after their DeepSeek-triggered plunge, primarily because, as more information emerged, it began to look as though DeepSeek had spent far more money to create its chatbot than it claimed.
While we are early in the current software sector sell-off, I do think the event has become indiscriminate, meaning that while some of it is justified, some stocks are getting caught up in the fray that may not deserve it. After all, many software companies are poised to adopt AI and use it to further monetize their businesses. Data-intensive software companies like Snowflake have already signed deals with OpenAI and Palantir.
Still, investors should be cautious before buying the dip. There are several questions that investors should ask before picking up shares of any of these companies: How much of this company's business could a tool like Claude Cowork or similar future tools actually steal or replicate? Does the software company you are examining have a prudent AI strategy that could help it avoid being left in the dust?
Finally, valuation and fundamentals are arguably more important than ever before. AI is going to be a competitor to software, so the software companies you invest in should be profitable, with growing revenues, and not trading at nosebleed valuations.
