The pace of improvements in artificial intelligence models has raised questions around the strength of software companies, and those concerns are unlikely to dissipate in the near term, according to analysts at Jefferies.

Shares of software stocks fell sharply on Tuesday, as the launch of new tool for legal analysis from artificial intelligence group Anthropic was viewed as the latest source of a potential existential challenge for the segment.

Data and information publishers, notably Thomson Reuters and Legalzoom.com, were among the biggest decliners, while other names like payments firm PayPal and online travel agency Expedia Group also slumped.

It was the latest leg lower for software names, which have largely underperformed the wider U.S. stock market so far this year. The emergence of new AI tools that can be used to perform specific tasks, sparking fears that businesses will begin to simply create their own bespoke software without needing help from specialists.

“AI models and agentic frameworks continue to improve at a rate far faster than we have been anticipating, and this is leading to new capabilities that raise reasonable questions about the moats of [software] companies,” the Jefferies analysts including Surinder Thind and Colton Feldmann said.

“With the uncertainty around the impact of AI only growing, it’s becoming increasingly unclear when investors may be willing to step back in. This leads us to believe that valuation multiples could continue to materially re-rate downwards[.]”

On Tuesday, two S&P indices tracking software, financial data and exchange companies lost a combined total of roughly $300 billion in market value, the Wall Street Journal reported.

Strategists at BofA Securities noted that “the ’generative AI will kill software’ narrative has strongly taken hold in the last six months, driving around a 30% drop in financial valuation ratings across the sector globally. U.S. software, in particular, has compressed by 35% during that time.

However, even though some segments of the tech industry are “bound to be profoundly impacted” by AI, “we see current levels as attract for stocks […] with strong moats and potential AI upside.”

Germany’s SAP was given as one example by the BofA analysts.

“Software companies are not equal in front of AI risks. Deep domain expertise and business integration are hard for new entrants to replicate, making complex, mission‑critical platforms like SAP less vulnerable as they embed [generative AI] using proprietary customer data,” the analysts including Frederic Boulan wrote.