The rise of artificial intelligence has created a clear divide in the stock market. While a handful of major technology companies have seen significant gains, many software and service firms have experienced stock declines due to investor fears that AI could make their products obsolete. However, some market analysts suggest these concerns may be excessive, creating potential opportunities in undervalued stocks.
Key Takeaways
- Six major tech stocks, including Nvidia and Microsoft, have gained an average of nearly 40% in 2025 due to the AI boom.
- In contrast, companies like Adobe and ServiceNow have seen their stock values decrease by 20% and 10% respectively, despite strong financial performance.
- Data provider FactSet has seen its stock drop over 40%, trading at a 15-year low valuation relative to earnings.
- Analysts suggest that the market may be underestimating the resilience and AI integration potential of these affected companies.
A Market Split by Artificial Intelligence
The financial markets in 2025 have been heavily influenced by developments in artificial intelligence. A select group of companies at the forefront of AI technology has reaped substantial rewards. Chip manufacturers Nvidia and Broadcom, alongside cloud and data giants Microsoft, Alphabet, Meta Platforms, and Oracle, have become the clear beneficiaries.
Collectively, these six companies have seen their stock values increase by an average of nearly 40% this year. This growth is fueled by strong earnings reports and widespread investor optimism about their central role in the expanding AI ecosystem.
Understanding the AI Hype Cycle
Investor behavior is often driven by narratives. The current narrative favors companies that build the foundational infrastructure for AI, such as semiconductors and cloud computing. This has led to massive capital inflows into a concentrated group of stocks, while casting doubt on others perceived as vulnerable to disruption.
Software Firms Face Investor Scrutiny
While some tech companies soar, many established software firms are facing significant headwinds. The primary concern among investors is that generative AI tools could replicate the functions of existing software, eroding their business models.
Adobe is a prime example of this trend. The company's stock has declined by 20% in 2025. This drop occurred even as Adobe reported a 36% increase in net income during the first nine months of its fiscal year, indicating strong underlying business performance.
Jonathan Curtis, Chief Investment Officer at Franklin Equity Group, believes this perception is mistaken.
“The narrative out there is that software is going to be run over by AI,” Curtis stated. “But software stocks are underpriced and misunderstood.”
Opportunities in Cloud and Enterprise Software
Curtis points to ServiceNow, a cloud software platform, as another company affected by this negative sentiment. Its shares have fallen more than 10% this year. He argues that ServiceNow is well-positioned to benefit as its corporate clients increasingly adopt AI, integrating it into the workflows that ServiceNow manages.
Similarly, UK-based accounting software provider Sage Group has seen its stock decline. Its shares are down 15% on the London Stock Exchange and approximately 8.5% in the U.S. The company now trades at just 23 times its estimated 2026 earnings, a valuation below its five-year average and that of competitors like Intuit.
Valuation Discrepancies
The price-to-earnings (P/E) ratio is a key metric for valuing a company. The lower valuations for companies like Sage Group and FactSet suggest that investors are pricing in significant future risk from AI, which some analysts believe is an overcorrection.
Data and Service Companies Also Impacted
The anxiety surrounding AI extends beyond software into data and service-oriented businesses. The availability of low-cost generative AI models like ChatGPT has raised questions about the value proposition of traditional data providers.
FactSet Research Systems, a leading supplier of financial information, has been hit particularly hard. The company's stock has plummeted by more than 40% in 2025. This has pushed its valuation down to just 16 times its earnings estimates, a low not seen in 15 years.
However, some analysts see this as a buying opportunity. UBS analyst Alex Kramm recently upgraded his rating on FactSet stock to a Buy, arguing that the fears are overstated. Kramm noted that financial institutions often “move slowly given complexities and regulatory demands,” making a rapid shift away from established providers unlikely.
He added that FactSet “is deeply integrated in customers’ workflows and remains in a strong position to be a trusted partner as clients navigate generational changes.”
AI as a Tool for Efficiency, Not Just a Threat
Even companies in traditional, low-tech sectors are being re-evaluated through the lens of AI. ABM Industries, a facilities management firm, is one such company. While its core business involves physical maintenance and engineering services, investors have shown some concern about technological disruption.
CEO Scott Salmirs addressed this on a recent earnings call, stating that while ABM may use AI and robotics for certain tasks, the technology “will not disintermediate” the company’s “fundamentally people-led” business model.
Furthermore, there is a potential upside that may be overlooked. ABM could leverage AI internally to reduce costs, improve operational efficiency, and generate new sales leads. Despite this potential, the company, which has a market value of nearly $3 billion, trades at only 12 times its 2025 earnings estimates. If AI adoption leads to higher profit margins, its valuation could see a significant lift.
While the market's largest players are currently seen as the primary winners of the AI revolution, a closer look suggests that other companies, currently undervalued due to market fears, may ultimately derive substantial benefits from the same technology.
