Why one of tech's top fund managers just abandoned software stocks (www.latimes.com)

Nick Evans, a prominent fund manager at Polar Capital, has abandoned most software stocks, citing existential threats posed by AI advancements. His decision to sell these shares has proven prescient, as software stocks have seen a significant downturn of 22% this year, contrasting sharply with the flourishing semiconductor sector. Evans argues that AI tools, such as Anthropic PBC's Claude Cowork, have reached a level of sophistication that allows them to replicate and modify existing software, leading to intense competition for established firms. He suggests that while complex software providers like SAP may show some resilience, many traditional software companies may struggle to survive this disruptive wave. The implications of Evans' outlook are substantial for the AI/ML community and investors alike. As AI tools enhance their capabilities, the demand for application software could diminish, prompting a reconsideration of current valuations in the sector. Moreover, Evans warns of potential financial strain on software companies that may need to compensate employees with cash instead of equity, following significant market declines. He advocates that investors be cautious, significantly underweighting application software investments and preparing for a harsh correction similar to the decline of the newspaper industry in the early 2000s, as AI-driven disruption accelerates.