JPM Software Industry Thoughts and Rank Order AI Disruption Concerns Present Compelling Opportunities in Relation to Both Growth and Inexpensive Valuation

J P M O R G A N North America Equity Research 13 August 2026

Software Industry Thoughts and Rank Order: AI Disruption Concerns Present Compelling Opportunities in Relation to Both Growth and Inexpensive Valuation

In this report, we are outlining some of the key themes we believe are most relevant Software - Large Cap / Mid & Small for investors in Software and AI infrastructure companies in our coverage, as well Cap as our updated thoughts on the rank order within the coverage companies. With Samik Chatterjee, CFA AC AI-led disruption being top-of-mind for investors with software companies, we ( believe the relevance, stickiness and hurdles to replacing Enterprise-grade

software which is part of the system of record for their customers is Jaiden R Patel underappreciated by investors who are applying a broad brush in relation to AI ( disruption for both application software as well as infrastructure software. Brian Hyska ( While not an exhaustive list, we believe investors should keep the following in mind relative to drivers for much lower disruption in Software than investors Mashu Nishi are pricing in, including: ( . More so than implementing a software solution with the leverage of frontier Arti Vula, CFA models, we see an additional challenge in relation to updating and maintaining ( software, often cited by experts as 80% of the cost compared to only 20% for deployment, which will challenge all customer cohorts beyond the large J.P. Morgan Securities LLC

Enterprises to explore alternatives.

2. Rising token costs among enterprise customers exploring different use cases are already starting to show up in budget decisions, and will drive customers to evaluate the returns on each alternative solution more closely, particularly with Software companies more equipped to deploy, maintain and take ownership of solutions.

3. Deterministic outcomes are required to lead to optimal use of compute while generating business results, which implies integration with systems of record and knowledge of workflows are important, driving higher importance for Software companies with context into Enterprise systems.

That said, there are headwinds likely for certain layers of the software stack, in particular Application layer solutions which have limited integration with systems of record and the value associated with the solution is more firmly in the User Interface (UI). We expect the headwinds to impact the adjacencies more in relation to revenue drivers for the company, rather than the core of their portfolios.

However, the slowdown that software companies have seen in growth on account of the challenge to their adjacencies in some scenarios should not only be offset in the future by increasing monetization of AI-led features, but also potentially set up for an acceleration, with revenue drivers shifting to consumption over seat-based over time and customers increasingly looking to leverage AI-led productivity benefits that enable them to manage personnel costs, the same way that we are seeing software companies channel the productivity gains into R&D and S&M cost optimization.

See page 26 for analyst certification and important disclosures.

Samik Chatterjee, CFA AC North America Equity Research ( August 2026 JPMORGAN

Software companies steadily moving to AI monetization and migrating from AI engagement In our view, software companies do face headwinds in relation to both seat count as well as sale of adjacent, bundled-in solutions in some cases, but this dynamic is set to change with software companies moving to accelerate their AI monetization after initially focusing on deploying their AI features / solutions and looking to drive adoption first before turning now to monetization, which we now see becoming a significant focus for almost all coverage companies.

The AI led features and capabilities will be monetized and should support, in the early days, a reversal of the deceleration in growth seen in recent periods, followed by a likely acceleration as consumption-led growth increasingly overwhelms the headwinds from losses in seats while also cycling past the temporary headwinds in relation to customers closely evaluating their software…