AI casts existential shadow over legacy software companies, Bridgewater CIOs warn

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April 27 : When Amazon began selling books online, many feared traditional bookstores such as Barnes & Noble would fade into obsolescence.

Drawing parallels with that episode from the 1990s, Bridgewater's co-chief investment officers said similar existential threats now loom over legacy software companies as the rapid rise of artificial intelligence reshapes the sector.

"With the latest release of Claude Code, an upstart competitor has created existential risk for major businesses, much as Amazon posed to Barnes & Noble," the client note said on Monday.

Concerns that newly released AI models could upend traditional software companies have rattled the sector, triggering a selloff in software stocks. The S&P 500 Software and Services Index has tumbled 16.6 per cent so far this year. Layoffs too have been rising, with companies across sectors, from big tech to financial services, cutting thousands of jobs, citing cost-savings from AI deployment.

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"Markets have started pricing in the risk to application software companies, and companies will either co-evolve with AI or face disruption," the investment firm's co-CIOs Bob Prince, Greg Jensen and Karen Karniol-Tambour wrote.

Back in the 1990s too, while some brick-and-mortar booksellers shut stores, many adapted to expand their online presence and focused on in-store experience and curated selections.

Bridgewater also warned that persistent geopolitical turmoil would continue to disrupt markets and commodities.

'WEAPONIZATION OF CHOKEPOINTS'

Bridgewater CIOs said U.S. moves in Venezuela, Greenland and Iran could hasten cracks in the U.S.-led alliance system, fuelling a faster global scramble for weapons and resources.

Shipping through the Strait of Hormuz, a key artery for roughly a fifth of global energy flows, remains muted as Iran de-escalation efforts stall.

The conflict has roiled global markets, driven commodity shortages and stoked fears of rising inflation.

"How the war in Iran plays out from here remains highly uncertain, but enough disruption has occurred, and the process of resuming shipments will be slow enough, that the commodity shock will persist for some time," the note said.

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