Good morning. Today, we’re looking at how markets are sizing up the future of software as artificial intelligence companies take up more of their space.

Energy: Ottawa has asked Canadian oil producers to assess how much crude they could potentially release into the market as the escalating war in Iran leaves a fifth of global supplies in a chokehold.

Boardroom battles: Quebecor Inc. chief executive officer Pierre Karl Péladeau lost his bid to take control of the board of Transat AT at the airline operator’s annual meeting.

Lending: Goeasy Ltd., a personal lender for subprime borrowers, shocked investors by announcing surging loan losses and suspending its dividend, sending its shares tumbling 57 per cent.

The current chapter of investor concern over artificial intelligence – that is, not the one that has gripped the markets for years as tech giants have poured unfathomable amounts of money into development, but without yet delivering on the misplaced hope that AI agents would make everyone rich and eliminate the need to work – opened on Feb. 3.

That was the day Anthropic released productivity tools for lawyers built on its Claude AI model – a move that immediately rattled investors in companies that sell legal databases, analytics and workflow software.

Thomson Reuters Corp., a heavy investor in AI, saw its share price fall 16 per cent on the Toronto Stock Exchange in one session. (Woodbridge Co. Ltd., the controlling shareholder of Thomson Reuters, also owns The Globe and Mail.)

Fears quickly spread as investors considered the possibility that companies like OpenAI and Anthropic, which are building powerful general-purpose models that can perform many of the tasks once handled by specialized software, could disrupt software across industries.

If AI could handle work long done by legal software, why not sales, finance, human resources and customer service?

The selloff wiped out almost US$1-trillion from software and services stocks, pulling down companies including International Business Machines Corp., Adobe Inc. and Intuit Inc., which had already seen their shares fall in recent months.

‘Like fighting a ghost’

The current flareup seems to be reaching an equilibrium, of sorts, as analysts and executives call fears of an SaaS-pocalypse overblown. (“Software as a service” is a cloud-based delivery model in which vendors provide applications such as Microsoft Teams, Salesforce and Slack.)

Dan Ives, an analyst at Wedbush Securities, said the AI trade has been driven by “fear of the unknown” for the tech and software sector. “For the bulls, it’s like fighting a ghost.”

Nvidia Corp. chief executive Jensen Huang called worries over AI snuffing out software “the most illogical thing in the world.”

“There’s this notion that the tool is in decline and being replaced by AI,” Huang said at a Cisco Systems event. “Would you use a screwdriver or invent a new screwdriver?”

OpenAI, Anthropic and Google are keen to show they’re not the bad guys, highlighting how most software companies are not being replaced by AI models. Instead, they’re building on top of them in the way that software companies built on top of foundational platforms like Microsoft Windows.

The software companies, too, are insisting they’re stronger together.

Executives at Thomson Reuters said in late February that “CoCounsel,” the company’s legal AI technology, had reached more than one million professional users across 107 countries and works with major AI models including Anthropic’s Claude, OpenAI’s GPT and Google’s Gemini.

Shopify said it believes chatbots will increasingly steer commercial activity toward storefronts powered by their platform. In January, the e-commerce company said it had co-developed infrastructure with Google – called the universal commerce protocol – designed to smooth the online shopping experience.

As companies underline that interdependence, investors are reassessing software’s prospects in an AI-driven economy. Since Feb. 2 – the day before the selloff – shares of Thomson Reuters have climbed back, and then some.

Zooming out

For all the attention these companies are getting, few have seen their fortunes mirror the market’s unbridled exuberance and growing caution around AI quite like Toronto-based Constellation Software Inc.

When ChatGPT was introduced on Nov. 30, 2022, markets saw upside everywhere. For software makers, that meant faster development cycles, lower coding costs and the possibility that software companies could build products more quickly.

Shares of Constellation, which has bought hundreds of smaller businesses that make “mission-critical” software for niche sectors such as golf courses, public transit providers and municipal governments, were sent to the heavens.