There was a clear pattern in the FTSE 100 today (14 September): the top performers were software/data stocks.
As I type, Sage (LSE:SGE), RELX, Experian and London Stock Exchange Group (LSEG) are up 6.3%, 5.7%, 4%, and 4.2% respectively. These are big jumps. What’s going on?
AI safety fears
Over the past 18 months, any news related to artificial intelligence (AI) has tended to pummel software stocks. Whenever AI labs like Anthropic (Claude) released a new model, the whole software sector dropped lower.
The reason being that data platforms could be vulnerable to AI disruption. One major concern is that if an AI agent can do the work of several employees, companies may need fewer seats/licences.
The technology also lowers barriers to entry in software development, potentially introducing more competition.
However, AI-related news out over the weekend was different. The CEOs of both Anthropic and OpenAI (ChatGPT) now seem to be on the same page, saying the technology’s pace of progress needs to slow in case AI gets out of control.
Left unchecked, it [AI] could outrun our ability to understand and control these systems, and so must be pursued very carefully, if at all.
Anthropic CEO Dario Amodei
This paves the way for the technology to be far more heavily regulated. Note, a cross-party group of UK MPs have just called for AI-related legislation to address potential risks.
As a result, FTSE 100 software stocks are rallying, particularly Sage.
The big riser
Thing is though, I’m unconvinced that Sage was really at risk anyway. That’s why I invested in February at 793p per share (Sage is now above 1,000p).
The company provides accounting, financial, HR and payroll technology for millions of small- and mid-sized businesses. It has spent decades building trust and compliance in various jurisdictions.
While consumers can put up with the odd hallucination, there’s no room for them in accounting. Errors could lead to tax and legal liabilities, meaning getting things right is non-negotiable.
As such, CEO Steve Hare has called the idea that a third-party AI agent can replace chief financial officers and most accountants “completely ludicrous”. He added: “That is one of the most ridiculous things I have ever heard in my career”.
However, Sage is no Luddite when it comes to the technology. It continues to deepen AI-powered capabilities across the platform, including agents that operate inside the financial ledger. Customers are very interested in using AI to detect unusual transactions (which then need a human to check).
For me, the biggest risk would be a serious economic downturn, as this could see more small- and medium-sized businesses go under. Customers might also delay software upgrades and cut nice-to-have modules.
As things stand though, Sage is growing its customer base and churn remains very stable. In the first nine months of FY26, revenue increased 11% to £2.06bn, including 14% growth in North America.
Looking ahead, margins are expected to gradually improve as Sage benefits from the use of AI internally.
Is it too late to consider buying the stock? I don’t think so. The forward price-to-earnings ratio’s just 17.5, still a notable discount to its 10-year average, while the forecast dividend yield is around 2.3%.
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Ben McPoland owns shares of Sage.
