The artificial intelligence (AI) boom is starting to get serious, with a slew of AI tools (for coding, legal, and more) getting launched from the leading frontier AI model creators. Undoubtedly, it’s easy to think that this is curtains for legal, finance, coding, or various other professions.
And while some would argue that the AI impact on software company valuations is a tad on the overblown side, I do think that the market, as you’re probably well aware by now, is forward-looking. Right now, it’s looking way out into the future. Perhaps in five years to a decade from now, such professions will be changed by the rise of specialized agentic AI platforms. Undoubtedly, the technology is moving fast, perhaps too fast to keep up with.
As investment theses change and moats become eroded, perhaps some selling in the software industry is more than warranted. But, as always, the selling activity tends to extend a bit too much to the downside.
Like a pendulum, perhaps some of the sold-off software plays, especially those with sound AI and agentic strategies, might be going for way too cheap. There are competitive pressures, but as long as firms stay up to date with the latest AI agent tech, I do think there’s an opportunity to stay ahead in a race that’s about to get that much more interesting.
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The AI impact on software valuations has been a bit of a shocker
Of course, AI may have eroded the value of code bases, but as the disrupted software players stay on their toes while pouring considerable sums into AI talent, I wouldn’t assume that a company like Anthropic (the firm behind the sensation that is Claude Code and Cowork) or OpenAI (they just launched an agentic platform named Frontier) is going to send software valuations to absolute zero.
That’s just not realistic, even if their new agents do have a profound impact on a wide range of industries. Though agents with legal tools are nowhere near replacing legal professionals, I do think the possibility increases over time.
Indeed, just as hallucinations are becoming a tad less common with chatbots, perhaps agents could become more capable over time. In the near term, junior-level employees may be at risk. And in several years, perhaps mid-level and even higher levels may not be 100% safe. Either way, AI-native is the buzzword these days, and as software firms pivot, I do think a rebound could follow. At some point, software will be a severely undervalued bargain. Until then, though, perhaps it’s best to average down as the implosions continue.
Thomson Reuters stock is down 60%
Take shares of Thomson Reuters (TSX:TRI) stock, which has collapsed nearly 60% from peak to trough. The media firm, which is also in the legal software business, seemed to be in the blast radius when Anthropic announced its latest AI legal tools. Could this be the beginning of the end for legal software? Probably not. That said, Thomson Reuters must be ready to invest heavily to adapt and prepare for the wave of disruption to come.
Though it’s a scary time to buy the dip, I do think there’s a good chance that Thomson Reuters can rise out of the wreckage as an agentic winner. It has the data moat as well as agentic products that might just be an easy sell to existing clientele. Given there’s no room for hallucinations in legal and the importance of trust, I’d argue Thomson Reuters is well-equipped amid the agentic boom.
Of course, agents are only going to get better from here, so the firm needs to move fast. Though I could be wrong, I view the name as a great deal at 21 times trailing price-to-earnings (P/E).
