“Software is already eating AI” and will continue to do so, according to HSBC, with the bank shrugging off recent market fears about the sector being displaced by artificial intelligence. Software stocks plunged earlier this month as widespread concerns that AI could make software-as-a-service, or SaaS, business models obsolete, sparked a sell-off and warnings of an impending ” SaaSpocalypse .” But in a Tuesday note, analysts at HSBC said they do not expect that software will be usurped by AI, and will instead be a major beneficiary of its development. Consumer AI platform developers — like Google parent firm Alphabet , ChatGPT maker OpenAI and startup Anthropic — have little to no experience creating “enterprise class” software and would be “architecting from scratch in unfamiliar highly complex areas,” HSBC’s team said. Meanwhile, it was not practical, realistic, or economically sound for companies to use AI to develop their own in-house software systems, they added. Even if vibe-coding — developing code using AI prompts — led to the roll-out of better or free software solutions, HSBC said it would still be extremely difficult for these to displace incumbent vendors that run the day-to-day operations of global companies. “Within a full-blown enterprise application, we think AI is destined to be subordinate to the overall software platform,” the bank’s note said. “We have identified a party that is best suited to use AI to generate software that is better than existing legacy vendors. And, of course, that is the software vendors themselves.” Given recent market moves and sentiment among investors, HSBC said building or expanding positions within the software space — prior to a re-rating — “may be timely.” “Sector valuations are at historical lows, even though we believe the sector is poised to expand massively and we see strong demand momentum lasting for the foreseeable future,” its research team noted. “As profitable as AI has been for the hardware/semiconductor sectors, we see the lion’s share of value being generated within the software sector — a sector that has been planning and building agentic AI for the past two years, with a kick-off in 2026.” HSBC has a Buy rating on a swathe of software stocks — many of which were caught up in this month’s sell-off. They include Oracle , ServiceNow , Salesforce , HP and CrowdStrike . It has a Hold rating on Twilio , SAP , Fortinet and Cisco , and a Reduce rating on Palo Alto Networks , IBM and CoreWeave .