Agentic AI and Software: Why Goldman Sachs Says Disruption Is Only Half the Story

The rise of agentic AI is shaking up the software industry’s foundations—but not in the way many fear. A new report by Goldman Sachs suggests disruption is only half the story; the bigger narrative is transformation, expansion, and a reshaping of competitive advantage.

Is AI Really “Eating” Software—or Rebuilding It?

The emergence of agentic AI tools has sparked a familiar anxiety: that software, as we know it, could be replaced. The report acknowledges these fears, noting concerns that AI could “eat” software and trigger a sharp re-rating of the sector.

But the reality is more nuanced. As Goldman Sachs’ US software analyst Gabriela Borges puts it, “AI is software” and is essentially code designed to perform tasks. Rather than eliminating software, AI is redefining what software looks like and how it is built.

Will AI Expand or Shrink the Software Market?

Contrary to doomsday predictions, the report argues that AI is likely to expand the overall software market. Lower coding costs and faster development cycles could unlock new applications and users.

However, this expansion comes with a trade-off: intensified competition. As barriers to entry fall, more companies can build and deploy software solutions, making differentiation harder and execution more critical.

Are Legacy Software Firms at Risk of Being Left Behind?

One of the central risks highlighted is the rise of AI-native companies. These firms are built from the ground up around AI capabilities and may capture a disproportionate share of new growth opportunities.

This raises a key concern: incumbents could find themselves stuck managing shrinking traditional businesses. Yet the report doesn’t write them off.

Borges notes that legacy firms are “innovating as fast followers” and can still leverage their domain expertise. The challenge is proving they can adapt quickly enough.

Is This a Temporary Shock or a Structural Shift?

Industry voices quoted in the report frame the current moment as part of a larger technological evolution.

Rick Sherlund, Founder and CEO of Sherlund Partners, says AI will not replace software but transform it. He describes this phase as one where software is “being reborn around AI” and will require a fundamental restructuring using large language models and AI agents.

This suggests a structural shift rather than a cyclical disruption—one that could redefine industry leaders over the next decade.

How Urgent Is the Need to Adapt?

For companies, the message is blunt. Sanjay Poonen, CEO and President of Cohesity, likens AI to a force that cannot be ignored: “Just like any technology wave, you must surf this tsunami, or it will demolish you.”

The implication is clear—adaptation is not optional. Companies that fail to integrate AI meaningfully into their products and operations risk rapid obsolescence.

Why Are Markets Still Unsettled?

Despite the long-term opportunity, near-term uncertainty remains high. Goldman Sachs Chief US Equity Strategist Ben Snider notes that sectors facing structural disruption typically stabilise only when earnings do.

That means volatility in software stocks could persist as investors wait for clearer signals on profitability and business model durability in an AI-driven world.

The report also flags continued pressure in credit markets tied to software exposure, though risks remain manageable under stable macroeconomic conditions.

What Should Investors Do in This Environment?

The report strongly cautions against taking extreme positions. This is not a moment for sweeping bets on either the collapse or dominance of software.

Instead, it emphasises selectivity. Investors should focus on companies that are actively investing in AI-driven restructuring, demonstrating strong technological capabilities, and adapting their business models to the new reality.

As the report puts it, “this is not an environment for binary bets on software's survival or collapse, but one that demands selectivity”.

(With inputs from ANI)