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Agentic AI: Software Sector's Disruption & Opportunity, Says Goldman Sachs

A Goldman Sachs report analyzes the dual impact of agentic AI on the software industry, predicting both disruption for some firms and significant market expansion. It warns that legacy software companies risk being overtaken by AI-native firms capturing new growth, though they can innovate as fast followers. The report emphasizes that AI will transform, not replace, software, necessitating a fundamental restructuring using LLMs and AI agents. Consequently, investors are advised to adopt a selective approach, focusing on companies actively adapting and investing in AI-driven capabilities.

Key Points: AI's Impact on Software: Goldman Sachs Advises Selective Investing

  • AI may disrupt some software firms
  • AI expected to expand overall software market
  • Legacy firms risk losing growth to AI-native companies
  • Investors should avoid binary views and be selective
  • Sector stabilization tied to earnings stabilization
3 min read

Agentic AI may disrupt some software firms but also create opportunities, investors need to be selective: Goldman Sachs

Goldman Sachs report says agentic AI will disrupt some software firms but expand the market. Investors urged to be selective, focusing on adaptable companies.

"This is not an environment for binary bets on software's survival or collapse, but one that demands selectivity. - Goldman Sachs Report"

New Delhi, March 24

The emergence of agentic artificial intelligence could disrupt some companies in the software industry, but it may also create significant opportunities for many companies, according to a report by Goldman Sachs.

The report noted that while AI is raising concerns about the future of software, it is also expected to expand the overall market, suggesting that investors should adopt a selective approach as the technology evolves.

It stated, "while AI could disrupt some firms, many may also benefit, reinforcing the idea that investors should be selective as AI technology continues to evolve".

Quoting some of the experts opinion the report draws a picture that while the software has dominated industries for over a decade, but the rise of new agentic AI tools for software development has sparked fears that AI could "eat" software, leading to a sharp re-rating of the sector.

However, Gabriela Borges, Goldman Sachs US Software analyst, said that "AI is software" and is essentially code designed to perform tasks. She expects AI to expand the software market but also increase competition by lowering the cost of coding.

The report noted that the main risk for legacy software firms is that AI-native companies may capture new growth opportunities, while incumbents could be left with shrinking traditional roles.

However, Borges added that legacy firms are "innovating as fast followers" and could still leverage their domain expertise to remain competitive, though they need to prove this capability.

Rick Sherlund, Founder and CEO of Sherlund Partners, said that AI will not replace software but rather transform it.

He described the current phase as similar to past technological shifts, adding that software is "being reborn around AI" and will require a fundamental restructuring using large language models (LLMs) and AI agents.

Sanjay Poonen, CEO and President of Cohesity, also described AI as a transformative force, warning that companies must adapt quickly.

"Just like any technology wave, you must surf this tsunami, or it will demolish you," he said.

The report added that stabilisation in the sector may take time. Goldman Sachs Chief US Equity Strategist Ben Snider said share prices in industries facing structural disruption tend to stabilise only when earnings stabilise.

The report also noted continued pressure in credit markets linked to software exposure, though risks remain manageable under a stable macro environment.

So the report outlined that the investors should avoid binary views on the sector and instead focus on companies that can adapt, particularly those investing in AI-driven restructuring and strong technological capabilities.

It stated, "this is not an environment for binary bets on software's survival or collapse, but one that demands selectivity".

- ANI

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Reader Comments

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Rohit P
As a software developer in Bangalore, I see this daily. AI tools are making coding faster, but they're not replacing the need for problem-solving and architecture. The report is right - it will expand the market. More people will be able to build software, which is good for India's digital economy.
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Aman W
The selective approach advice is crucial for retail investors. Many in India are jumping on any stock with "AI" in its name. We need to look at which companies are genuinely integrating AI into their core, not just making announcements. Legacy firms with strong client relationships might still have an edge.
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Sarah B
Interesting perspective. The point about AI lowering the cost of coding could be a double-edged sword for India's massive IT sector. It might pressure margins but also open up new service lines in AI implementation and consulting. Adaptation is the only way forward.
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Vikram M
Completely agree it's about transformation, not replacement. Look at UPI – it transformed payments, didn't replace money. Indian software firms need to be at the forefront of this "rebirth" using AI. We have the talent. Hope our leaders have the vision. Jai Hind!
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Karthik V
While the report is insightful, I respectfully think it underplays the disruption risk for mid-level engineers in maintenance and testing roles. "Fast followers" might not be fast enough. The government and companies need stronger re-skilling programs to manage this transition smoothly for employees.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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