Industrial software stocks have been battered by AI-related sell-offs, but Barclays analyst Guy Hardwick argues the market reaction has been excessive. Hardwick contends that fears AI will destroy software-as-a-service economics misunderstand the true value proposition of enterprise software, which centers on services and domain expertise rather than code generation.

He points out that coding represents only 4-8% of SaaS revenue, meaning the financial impact from automated coding is limited. The belief that AI will commoditize enterprise software rests on the flawed assumption that customers primarily pay for code. Hardwick emphasizes that successful SaaS firms compete on service capabilities and industry expertise, not just software.

Valuations for industrial software companies have dropped sharply, with multiples falling about 50% in six months and Manhattan Associates shares down over 40% from their 2025 peak. Despite these declines, Hardwick sees potential for a rebound as the sector trades at COVID-era levels and offers stronger free cash flow yields than industrial tech hardware peers.