BREAKINGVIEWS-Software CEO wallets can help ease AI overkill

By Yawen Chen

LONDON, Feb 19 (Reuters Breakingviews) - During a stock price spiral company bosses often protest that investors have got it all wrong. Right now, nowhere is that refrain louder than in software. Faced with a brutal $1 trillion wipeout of titans of the sector including SAP SAPG.DE and ServiceNow NOW.N earlier this month, many are championing their fundamentals and argue fears of artificial intelligence disruption are overblown. But if these executives really want to arrest the panic, they should reach for their wallets.

The selloff has been indiscriminate. Although there’s a logic to dumping shares in companies whose products are difficult to use and face genuine danger from AI agents, investors have been selling those with sturdier defences with the same fervour. These include groups with vast stores of proprietary data, those that operate in highly regulated environments, or ones where transactions are deeply embedded on their core infrastructure and cannot easily be replicated or infiltrated by machine learning. Enterprise software groups such as SAP argue that as AI takes on more tasks, the core systems that ensure corporate data is accurate and compliant will become even more important. In that context, the old guards – harder to replace and now powered with AI – may command higher pricing power.

Investors are currently ignoring such distinctions. Breakingviews tracked eight major U.S. and European companies with market values of $100 billion or more over the past year. The valuations of these companies, which include Intuit INTU.O, Accenture ACN.N and AppLovin APP.O, have more than halved from an average of roughly 44 times forward earnings just a year earlier, even where revenue and operating profit are expected to grow and margins remain steady. Data from State Street, which closely tracks investment flows, shows institutional investors including pension funds and insurance groups have reduced their software holdings so aggressively that they are now more underweight the sector than at any time since 2021.

With words falling flat, a few business leaders have taken action. SAP directors Dominik Asam and Sebastian Steinhäuser have acquired stock following the selloff. Meanwhile, this week ServiceNow said Chief Executive William R. McDermott plans to spend $3 million on the company’s shares, framing the purchase as a sign of confidence in the software provider’s long-term prospects.

Other bosses can certainly afford to follow suit. Palo Alto Networks’ PANW.O Nikesh Arora, Salesforce’s Marc Benioff CRM.N and Adobe’s ADBE.O Shantanu Narayen each received pay packages, which include cash and shares, in excess of $50 million, according to the latest available public data. Deploying even a modest portion of that wealth into personal share purchases would signal that they genuinely believe their companies will recover and even thrive amid an AI boom. In a market gripped by anxiety, the most persuasive act of a CEO is to put their own money at risk.

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CONTEXT NEWS

ServiceNow said on February 17 its chairman and chief executive officer, William R. McDermott, planned to purchase $3 million of the company’s shares.