AI disruption fears send Asian software stocks sharply lower

Equities across Asia’s software and IT sector tumbled as investors accelerated a reassessment of how generative AI could alter revenue models and compress service economics. The rout was most acute in cloud accounting and systems-integration plays: Xero’s Sydney-listed shares plunged roughly 16% intraday, while Japan’s TIS and Hong Kong’s Kingdee saw declines approaching the same magnitude. Large Indian exporters such as Tata Consultancy Services and Infosys dropped at least 7% as traders repriced growth and margin assumptions for labour-intensive service models. Market participants said fears centered on AI-driven automation reducing billable hours, faster feature substitution in subscription products, and higher near-term capex to retrofit legacy offerings. The equity weakness also fed into fixed-income desks: bond investors and credit traders widened spreads on software issuers, reflecting concerns about margin erosion, heavier capex needs and a higher effective cost of capital for smaller vendors. That repricing constrains strategic options — from M&A to refinancing — for firms that must fund compute-heavy transitions. Hyperscaler and cloud-provider capital spending, while validating long-term demand for compute, is concentrating upstream procurement and shortening delivery windows for chips and integrated systems, creating supply and timing risks for smaller software vendors reliant on preferential access. Broader market headlines — including chip-supply stories, cautious outlooks from large cloud names, and shifts in executive messaging — magnified volatility and forced a faster sector re-rating. Private equity and buyout managers are already adjusting deal assumptions, demanding clearer AI differentiation and embedding stronger covenant and liquidity protections in deals. For companies, immediate responses are likely to include faster productization of AI features, tightened guidance, and reallocation of R&D and hiring toward measurable AI outcomes. Investors will increasingly focus on cash-flow resilience, gross-margin durability, customer concentration and clarity around AI monetization roadmaps. Over the medium term, winners will be firms that convert AI into differentiated, revenue-generating products and secure privileged compute access; others may face prolonged valuation discounts and tighter financing conditions. Regulators, procurement cycles and model-risk concerns could further slow adoption and shape the pace at which cost savings and new revenue streams materialize.