Evercore: IBM rout an 'overreaction' after latest Anthropic scare
When Anthropic released a new AI-powered plugin aimed at the legal industry last month, it created a doomsday narrative around the software industry that ultimately led to an $830 billion global selloff of stocks for software as a service (SaaS) companies.
The market wipeout was bad enough to earn the nickname "SaaSpocalypse."
Anthropic struck again on Monday, when it announced that its Claude Code tool could automate the modernization of COBOL, a programming language that is responsible for 95% of ATM transactions and most in-person credit card swipes in the US.
The company noted that the developers who built COBOL "retired years ago, and the institutional knowledge they carried left with them."
"COBOL modernization differs fundamentally from typical legacy code refactoring," Anthropic said in a blog post. "You aren’t just updating familiar code to use better patterns, you’re reverse engineering business logic from systems built when Nixon was president."
But by using AI, Anthropic said that it could modernize this code "in quarters instead of years."
The updating of COBOL has typically been handled by IBM (IBM), providing an important revenue generator for it. In fact, its Z mainframe business, which provides the core infrastructure of COBOL systems, experienced 48% growth in the fourth quarter, generating its highest revenue in 20 years, as Barron's reported.
Investors took notice of how Anthropic could disrupt this line of business, sending IBM's shares tumbling 13% on Monday. This was the biggest daily drop for the stock in 25 years.
It was another example of the AI trade becoming what Wedbush analyst Dan Ives recently called the "fear of the unknown" in a post on X critical of how investors are viewing software companies in the age of AI.
This fear has created what Ives sees now as an "AI is a threat to every industry narrative" with software being the most vulnerable.
IBM’s mainframe platform has proven resilient
IBM, of course, is not just a SaaS company, but one of the biggest legacy tech companies in the world that has been making significant strides in both AI and quantum computing.
And Monday's selloff was an "overreaction," Evercore ISI analyst Amit Daryanani said in a client note, adding that investors were reacting to the fact that Claude Code could “identify migration risks, and provide teams with insights to make informed decisions with the aim of shifting workloads" off of IBM's mainframe.
Dryanani said that while "we understand why mainframe migration could be a perceived negative for IBM, we would point out that IBM has already provided customers with several modernization options” through its Z platform.
He pointed to several reasons why Evercore expects customers to mostly stick with IBM's mainframe, including reliability, speed, on-premise AI inferencing capabilities for real-time analytics, security and regulatory considerations.
“Mainframes are widely used by sensitive industry verticals such as governments, healthcare, & financial services (migrating to public cloud not an option),” he said.
“We think customers choose to remain on mainframe given these advantages despite the availability of alternatives for several decades.”
Because of what he sees as the resiliency of IBM's platform, Daryanani called Monday's sell-off of IBM shares "unwarranted," and recommended being "buyers on weakness."
Interestingly, Anthropic on Tuesday unveiled new plugins for private equity, design and engineering - but this time highlighted the legacy software partners it was working with on the tools, including Salesforce, inc. (CRM), FactSet Research Systems (FDS), DocuSign, Inc. (DOCU) and LSEG.
All the partner shares gained on Tuesday, with DocuSign up 2.6%, Salesforce climbing 4.1% and FactSet rallying nearly 6%.
The news of Anthropic working with software partners even benefited IBM shares, which rose 2.7% on Tuesday.