HSBC’s “anti-market statement”: Software will devour AI, and now is a good time to buy at the bottom

# Long Yue

HSBC argues that enterprise software will not be disrupted; instead, it will “eat and domesticate” AI. The non‑deterministic flaws of large models cannot meet enterprises’ demand for zero errors and high reliability. Traditional software giants such as Microsoft and Oracle, with deep data and architectural moats, are embedding AI into their platforms. Compared with the previously hyped hardware and semiconductor sector, the software sector is now valued at historical lows, and **2026 will mark the first year of AI monetization for the software industry**.

Will AI‑generated code disrupt SaaS? HSBC’s answer is the exact opposite.

According to Windfall Trading Desk, on February 24, Stephen Bersey, Head of US Technology Research at HSBC, and his team released a report titled **“Software Will Eat AI”**, presenting a contrarian view.

Amid the spread of “AI disruption and panic trading”, HSBC clearly states that software will not disappear; instead, it is the **key way for the world’s largest enterprises to use AI in a controllable manner**.

HSBC summarized its view with a sharp comparison:

**“Hardware/semiconductors have been strong, but software will be better.”**

Its logic: what enterprises truly need is not “talking models”, but **controllable, auditable, repeatable system capabilities** — exactly the strength of software platforms.

- Enterprise software is not threatened by AI; on the contrary, AI will be embedded into software platforms.

- Enterprise software vendors have already completed the heavy lifting of design, intuitive programming, and embedded agent testing.

- The software sector is valued at historical lows and is poised for large‑scale expansion.

## Inherent flaws of large models vs. enterprise moats

The biggest market concern is that AI‑generated coding (“vibe‑coding”) will drastically lower the barriers to software development, allowing startups to easily disrupt incumbent SaaS giants.

HSBC firmly rejects this. The report points out that, technically, foundation AI models suffer from **inherent flaws**:

AI is non‑deterministic by nature — it may give different answers or even make mistakes on the same question.

This is **fatal in enterprise applications**.

“The world is used to software platforms that are repeatable, auditable, and error‑free in daily operations, and foundation models do not possess these attributes.”

HSBC emphasizes that for high‑fidelity enterprise platforms, expecting AI to achieve “full replacement” is unrealistic.

Furthermore, after decades of evolution, enterprise software has achieved extremely high throughput and reliability. It involves massive amounts of critical and proprietary intellectual property (IP) that simply cannot be used for AI training on the public internet.

In HSBC’s words:

**“If you don’t know what code you’re writing, vibe‑coding is almost useless.”**

This is like a pharmaceutical company not designing its own chips or smelting its own steel. Enterprises abandoned building core IT systems in‑house decades ago, as it defies basic economic sense.

They quickly realized that developing, maintaining, and staffing these systems internally is extremely costly. Spending heavily to build massive platforms only to allocate costs across one use case (self‑use only) is highly inefficient.

Instead, purchasing products from software vendors with expertise in development, maintenance, and staffing is far more economical, as costs can be spread across thousands of customers.

## Who builds the best AI software? Traditional software giants

If startups and large model providers lack experience building enterprise‑grade complex architectures, who is best positioned to use AI to build better software?

HSBC gives a definitive answer:

**“Software vendors themselves.”**

The logic is clear:

Established software giants such as Salesforce, Oracle, ServiceNow, and Microsoft possess deep domain expertise, established sales channels, and customer trust. More importantly, they are using the same AI coding tools to embed refined intelligent agents into their extensive platforms.

AI’s role is to be **“dimensionally reduced and domesticated”**.

HSBC uses a vivid analogy:

AI is responsible for creatively analyzing and generating intelligent data, but that data must be processed, stored, audited, and executed by **deterministic software stacks**.

**“The vast majority of enterprise software is not threatened by AI. Instead, AI will be domesticated within application stacks via agents, creating enormous value in the process.”**

## 2026: The first year of software monetization, at historical low valuations

From an investor perspective, technological logic must eventually translate into earnings visibility and market opportunity.

HSBC provides a clear timeline:

Major software giants began the heavy work of designing and beta‑testing embedded AI agents in 2024. The technology is now mature and being rolled out to large global customers.

**“We believe 2026 will mark the kick‑off for monetization.”**

HSBC states this will be the main mechanism for the world’s largest enterprises to consume AI, driving exponential growth in AI inference demand.

On investment positioning, HSBC concludes emphatically:

**“As good as Hardware/Semi has been, Software will be better.”**

HSBC believes AI is a technology, but “**enterprises rarely buy technology — they buy solutions to business problems**”, and these solutions can only come from infinitely flexible software stacks.

Within an ecosystem that generates more than $100 trillion of global GDP, traditional software giants are the core beneficiaries of unlocking AI’s value potential.

Right now, the total addressable market (TAM) of the software industry is on the eve of a massive 5–10 year expansion cycle. Yet market misperception has left the sector at **historical low valuations**.

HSBC suggests that before a valuation re‑rating, now is an appropriate time to establish or increase positions in the software sector.

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The above content is courtesy of Windfall Trading Desk.

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