Can Software Firms Navigate the AI Challenge and Derive Advantages From It
Monday, March 16th, 2026, 10:54 AM
NVIDIA, DeepSeek, ChatGPT, and Anthropic (Claude) have prominently occupied headlines throughout the past year, engendering significant fluctuations within equity markets.
This scenario raises critical inquiries regarding the implications of artificial intelligence for the realms of IT software.
Among the holdings in our portfolio, Xero and WiseTech find themselves at the epicenter of this discussion. The results from February bolster our confidence in both entities.
Uncertainty Fuels Market Volatility
Navigating concerns surrounding AI—especially those that have yet to impact current earnings—remains a formidable challenge. Historically, the February reporting season has leaned more towards surpassing expectations rather than falling short.
The ramifications of AI tend to emerge beyond the current forecasting horizon, influencing the terminal phase of valuation assessments. This renders it difficult to diminish risks that elude quantification or recognition.
Markets typically exhibit a distaste for uncertainty; thus, existing volatility compels them to adopt a pessimistic stance until substantial evidence emerges to alter their perceptions.
Notably, February recorded an unprecedented number of movements, surpassing 10% on result days within the ASX200—many originating from the software sector.
For perspective, consider the week commencing February 10. This singular week experienced a sector-wide decline exceeding 10% across Insurance, Wealth Management, and Logistics over consecutive days—not merely affecting isolated stocks, but entire sectors, encompassing the majority of their constituents.
While such occurrences are both unusual and distressing for investors, we posit this may signal the apex of AI exuberance.
The introduction of an AI tool by Insurify precipitated a sell-off in insurance stocks. Meanwhile, Altruist’s launch of a tax planning tool adversely impacted Wealth Management.
Concerns surrounding an autonomous logistics agent battered US logistics stocks, resulting in substantial declines.
The culmination of negative sentiment surrounding AI arguably peaked with the publication of Citrini Research’s “2028 Global Intelligence Crisis” report on February 22, 2026. This sensational study claimed that AI could supplant extensive segments of knowledge work within a mere three years.
Characteristics Crucial for Software Companies to Withstand AI Disruption
The pivotal question posits whether software companies can endure the challenge posed by AI. We contend that the answer is affirmative, hinging on three critical characteristics that delineate which software enterprises will not only survive but thrive:
- Control of and Access to Proprietary Data: AI thrives on data. Its prowess lies in assimilating vast volumes of information and structuring it into actionable datasets. However, the initial data must be available.
While individuals and smaller businesses may embrace open access to their information, Xero and WiseTech possess data amassed over decades within closed systems, with no obligation to disclose it. - Reputation as Trusted Entities and Regulatory Accountability: Accounting software integrates with banks and government agencies. CargoWise engages with these institutions, alongside customs and biosecurity authorities across the globe.
Although this adds layers of complexity, the software must undergo scrutiny by these entities prior to obtaining API access. Consequently, AI could encounter protracted bureaucratic hurdles that would inhibit its ability to disrupt critical software operations. - Dominance within Ecosystems and Intricate Complexity: As evidenced by Xero in Australasia (and its ongoing efforts in the US), when a single entity commands a market and serves as its connective tissue, the potential for displacement diminishes—especially if the firm continues to innovate and augment customer value.
WiseTech exemplifies this dominance, being utilized by 24 of the top 25 global freight forwarders. Its acquisition of E2Open extends its influence further along the distribution continuum.
Companies exhibiting these attributes appear well-guarded against impending AI disruption, at least for the foreseeable future. Both Xero and WiseTech embody these characteristics, with new insights from February’s reporting season reinforcing this perspective.
Insights from Intuit’s Partnership with Anthropic
Intuit’s strategy of collaborating with Anthropic—providing access to Claude at no additional cost—raises pertinent questions regarding the economics and pricing strategies of TurboTax and its broader software suite.
However, more enlightening is what this affiliation reveals about the constraints faced by AI in market penetration.
The partnership underscores how data ownership, reputation as a trusted entity, and ecosystem positioning have obstructed Anthropic’s direct entry into the market, necessitating a collaboration with the established incumbent.
The structured nature of tax returns renders these segments theoretically appealing for AI applications, which may elucidate the near-halving of certain accounting software valuations in the past year.
This partnership should facilitate enhancements in Intuit’s product while curtailing developmental costs. The advantages for Intuit are evident.
However, a more compelling inquiry revolves around Anthropic’s rationale for this partnership. If tax return filings could be simplified for AI, a direct market disruption would appear rational.
The fact that it has not occurred suggests genuine intricacies involved in the process. Intuit has invested substantial time and financial resources to guarantee accuracy in submitted returns.
Liability for incorrect filings ultimately falls on the individual or business submitting them. Most taxpayers, particularly those with intricate returns, are disinclined to accept such risks; this demographic largely comprises Intuit’s revenue base.
Moreover, Intuit maintains a repository of decades’ worth of filed returns and small business accounts. While Anthropic can glean insights from individual filings, it lacks access to the expansive collective learning fostered by both Intuit and Xero, both of which are reluctant to share proprietary data.
Finally, tax and accounting software interfaces with multiple governmental and financial institutions via rigorously vetted integration points. Although open banking gradually mitigates some barriers, the security implications surrounding AI access remain unresolved.
Additionally, it’s noteworthy that on March 5, ChatGPT announced the cessation of its in-app checkout features for travel bookings.
The rationale was that while users welcomed the research capabilities, they were hesitant to transact through the platform, favoring established third-party services instead. Issues related to payment processing, tax compliance, and inventory management were also highlighted.
This scenario bolsters our overarching theory regarding the constraints of AI displacement in transactions necessitating trust, accountability, and institutional integration.
WiseTech’s Results Highlight Opportunities for Cost Reduction
Upon presenting results on February 25, WiseTech’s new CEO, Zubin Appo, while noting somewhat subdued headline figures, underscored the significant potential for AI-driven cost reductions in product development.
Although AI poses a disruption risk to software companies collectively, for WiseTech, it manifests as a critical internal opportunity.
Appo announced plans to eliminate 2,000 positions—approximately 30% of the workforce, equating to about 50% of the product development team—over the next two years.
He cited instances of development timelines shrinking from six or seven months to a mere day, asserting that deploying custom functionalities in new countries is now six to seven times swifter than previously.
He further clarified that these savings predominantly pertain to product development and customer service, with prospects for further reductions in sales and supplementary functions.
A significant transition in WiseTech’s business model—from per-user pricing to a transaction-based framework (CargoWise Value Packs)—aligns harmoniously with the AI era.
Rather than focusing on upselling new modules or user licenses, WiseTech can leverage its AI-enhanced capabilities by increasing transaction volumes. Customers, in turn, stand to benefit from the productivity gains AI brings to their teams.
AI as a Dual Facet: A Threat and an Asset
In summary, we contend that the market has been swift to account for the potential threat posed by artificial intelligence to software enterprises. Our observations affirm that AI is markedly influencing operational modalities, and the pace of product advancement is accelerating.
Nonetheless, we believe that the apprehension surrounding pricing threats has largely been incorporated into software valuations, while recent developments indicate tangible limits to AI’s disruption—particularly for companies that maintain control over their data and are perceived as trusted, regulated entities.
What appears undervalued in the market is the cost-effective and developmental advantages that AI can yield for established incumbents.
The recent outcomes from WiseTech serve as a compelling illustration. Enhanced volatility suggests that markets are currently predisposed to factor in risks ahead of evidence to the contrary.
We recognize their hesitation to assign value to ongoing growth and cost-benefit prospects available to software firms with significant entry barriers as an opportunity. We view both Xero and WiseTech as well-positioned to capitalize on this circumstance.
John Middleton is the Portfolio Manager for the Mint Australasian Equity Fund and a co-Portfolio Manager for the Mint Australasian Property Fund.
The information contained herein is intended to be informative and does not constitute investment advice. Mint Asset Management serves as the issuer of the Mint Asset Management Funds. For the complete Product Disclosure Statement, please download it here.
Mint Asset Management is an independent investment management firm located in Auckland, New Zealand. Mint Asset Management is the issuer of the Mint Asset Management Funds. Access the product disclosure statement at mintasset.co.nz.
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