Datadog, Zscaler Lead Fresh Software Stock Selloff As AI Fears Return, But Analysts Call It Overdone

Upcoming quarterly reports from Salesforce, Workday, Snowflake and Zscaler should offer clearer insight into whether the selloff was overdone.

• New AI tools, especially those from Anthropic, are stoking fears of reduced demand for niche software, prompting investors to shift their money to better bets. 
• TD Cowen argues AI coding assistants enhance productivity but don’t replace core security platforms.
• Retail turns ‘extremely bullish’ on CRWD, WDAY, and ZS.

Top software and cybersecurity stocks plunged again on Monday amid panic selling triggered by new AI tools, which some investors believe would reduce the demand for legacy software. However, analysts believe the fears might be overblown, and the AI tools would, at best, complement existing software products.

Shares of data analytics firm Datadog, Inc. fell 11.3%, marking their steepest single-day decline since last May, while cybersecurity heavyweight CrowdStrike Holdings, Inc. slid 10%, their worst drop since July. Top names like Zscaler, Intuit, and Adobe also fell.

The most recent declines were triggered by new announcements from AI firm Anthropic. The Amazon-backed company has been adding new functionalities to its agentic AI platform Claude, including debugging code, drafting legal documents, and identifying vulnerabilities in enterprise security, which have wreaked havoc on the stocks of software companies operating in those areas.

Analysts’ Contrarian Take On CRWD

In an investor note about CrowdStrike, TD Cowen analysts said they believe the slide is overblown and that AI coding assistants improve software quality and developer productivity, but do not replace security platforms or reduce the structural demand for security.

Based on conversations with venture capital investors, coders, and private companies, TD Cowen sees no near-term impact on leading platform providers, including CrowdStrike, CyberArk, F5, Okta (OKTA), and Palo Alto Networks.

Wedbush analyst Dan Ives painted Anthropic’s security tool as an opportunity for cybersecurity companies, saying that it in fact validates the thesis that cybersecurity is the next frontier for the AI Revolution.

“Based on all checks, Claude will not replace vendors….BUT speaks to oppy on doorstep for PANW, CRWD, ZS,” Ives said in an X post.

ZS, CRWD, CRM Earnings To Settle Debate

Meanwhile, upcoming quarterly reports from top software companies are expected to put to rest the debate over whether the selloff is overdone or if the AI threat is real.

Workday will report on Tuesday, Zscaler on Thursday, and Salesforce, The Trade Desk, and Snowflake report on Wednesday. All reports are scheduled for post-market hours.

Retail investors seem to have turned upbeat for stocks that declined the most. As of early Tuesday, the Stocktwits sentiment was ‘extremely bullish’ for CRWD, WDAY, and ZS, ‘bullish’ for SNOW, ‘neutral’ for DDOG, ‘bearish’ for CRM.

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