LIVE MARKETS-BofA says fears of AI disrupting software are overstated 

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BOFA SAYS FEARS OF AI DISRUPTING SOFTWARE ARE OVERSTATED

Software stocks started off 2026 on the wrong foot as concerns that advances in AI could threaten the sector hammered valuations, but have since recovered sharply, and analysts at BofA Global Research argue such concerns were overdone.

"Our bottom line is that the enterprise software industry is unlikely to disappear," BofA said in a note dated October 20.

The S&P 500 software and services index .SPLRCIS is up nearly 5% YTD after falling about 27% earlier in 2026, and has rebounded over 30% from its early April lows.

The brokerage said despite rapid advances in agentic coding and frontier AI models, software firms retain important advantages.

As AI moves deep into enterprise workflows, it increasingly depends on established software vendors that house critical data, business rules and systems of record, BofA said, calling the "everyone can now build software" narrative "well ahead of reality."

The brokerage believes software moats are evolving rather than disappearing. Interface quality and user familiarity will slowly become less of a differentiating factor while "trusted business data, embedded industry knowledge and control over AI actions could become stronger defences."

Pricing, however, remains a key concern. BofA said seat-based models could come under stress as AI agents perform more work without adding more users. The brokerage expects seat-based hybrid subscription and consumption-based models to become more common.

(Avinash P)

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