The AI Investing Pulse

February 5th, 2026

In this Week’s Edition:

1. Analysis - AI Isn’t Killing Software. It’s Choosing the Winners

2. Stock Ideas - This Overlooked AI Stock Could Be A Surprise Winner In 2026

3. News - Nvidia’s Huang Pushes Back On Fears AI Will Replace Software

4. Startups - AI-Powered Fragrance Startup Osmo Raises $70m

5. Trends - Physical AI At CES 2026: What It Means For The Real World

6. Other News - How AI Is Reshaping Business Models

AI Isn’t Killing Software. It’s Choosing the Winners

This week’s analysis focuses on the dominant narrative in markets right now: the idea that AI is killing software.

That fear showed up clearly in price action. The main AIIP Index fell 7.3% over the week, with many software stocks among the worst performers. Investors are increasingly questioning whether AI agents will reduce the need for traditional software, compress pricing power, and disrupt established business models.

This week, we examine why that narrative has taken hold, where it may be right, and where it may be missing the bigger picture.

The Counter Thesis: Jensen Huang’s Tool-User View

As NVIDIA CEO Jensen Huang has argued, modern AI does not replace software. It orchestrates it. AI agents behave like super-users, calling APIs, querying databases, and executing workflows inside existing systems.

A useful way to think about this is the difference between a company’s main operating system and the tools that sit on top of it.

The operating system is where real work happens. Orders are approved, inventory is updated, invoices are issued, and payments are released. If something real is going to happen, that system has to be used. Even the smartest AI cannot bypass it.

By contrast, tools that sit on top may make information easier for humans to view or interact with, but they do not control the underlying process. An AI agent can often skip them entirely and talk directly to the core system.

This distinction is driving what can be described as a Great Software Sorting.

The winners are companies that own systems of record. These are the authoritative data sets and workflows that AI agents must call in order to function.

The losers are thin wrappers and seat-based models, where most of the value sits in a human-facing interface that AI can bypass.

The market is currently selling both groups together. That disconnect is where differentiation is beginning to emerge.

Featured Stocks: The Indispensable Tool-Users

These examples illustrate companies that sit at the centre of AI-driven workflows and control the data, APIs, and environments that agents rely on.

Alphabet Inc. $GOOG ( ▼ 2.16% )  

Sector: Communication Services
AI Stack: Model Training and Application
Ranking Status: Watchlist

Tool-User Thesis
Alphabet is building the environment in which enterprise AI agents operate. Gemini is being embedded directly into Workspace, Android, and Google Cloud, reinforcing Google’s role as the storage, collaboration, and deployment layer for AI workflows. Agents do not replace Drive or Docs. They populate them with data and automate work inside them.

What Stands Out
While much of the software sector fell between 8% and 11% this week, Google declined just 1.5%. The market is already distinguishing between disposable interfaces and more embedded tools.

Microsoft Corporation $MSFT ( ▲ 0.73% )  

Sector: Technology
AI Stack: Application and Edge
Ranking Status: Fundamental

Tool-User Thesis
Microsoft owns the corporate system of record. Copilot is not a substitute for Office, Windows, or GitHub. It is an overlay embedded directly into them. By integrating AI into existing workflows, Microsoft ensures that both humans and agents must operate within its ecosystem to get real work done.

What Stands Out
Despite strong fundamentals, Microsoft’s relative strength has remained subdued. This reflects narrative-driven concern rather than a change in its underlying role within enterprise workflows.

Palantir Technologies $PLTR ( ▼ 11.62% )  

Sector: Technology
AI Stack: Stack 2 and 5, Data and Application
Ranking Status: Fundamental

Tool-User Thesis
Palantir aims to become the decision cockpit for AI-driven enterprises and governments. In the Tool-User framework, it positions itself as the layer AI agents call to query complex data and execute high-stakes decisions. If successful, it moves from software that explains outcomes to software that helps determine them.

What Stands Out
Palantir combines strong fundamentals with a differentiated position in operational AI, placing it at the higher-volatility end of this group.

Stocks at Risk: The Thin Wrappers

The following examples illustrate the type of software businesses most exposed to the “AI kills software” narrative. These are not predictions of outcomes, but examples of models where much of the value sits in an interface layer that AI agents can increasingly bypass by connecting directly to underlying systems.

C3.ai $AI ( ▲ 3.35% )

Thin Wrappers Thesis
C3.ai’s ambition to be a horizontal enterprise AI platform places it in direct competition with hyperscalers offering similar capabilities natively. Without ownership of core data or workflows, it faces pressure from both bundled cloud services and open-source alternatives.

Snowflake Inc. $SNOW ( ▼ 4.59% )  

Thin Wrappers Thesis
Snowflake sits close to the data layer AI agents require, but faces growing competition from integrated hyperscaler offerings. The key uncertainty is whether AI-driven workloads consistently flow through Snowflake or migrate towards cheaper bundled platforms.

Seat-Based SaaS and BI Tools

Seat-based SaaS refers to software sold per user, where revenue growth depends largely on rising headcount. BI tools typically provide a visual or reporting layer on top of existing systems and data to help humans understand what has happened.

Both sit further from where decisions and actions are executed. As AI agents allow fewer people to do more, seat counts come under pressure. As agents query underlying systems directly, the visual layer becomes optional rather than essential, placing pricing power under strain.

Final Take

Parts of the software market are likely to be commoditised. Thin interfaces, narrow AI wrappers, and seat-based models in routine workflows face genuine pressure.

At the same time, the Tool-User thesis helps explain why the core software stack remains central. AI still requires tools, data, and structure to function. That keeps systems of record, operating platforms, and core workflows embedded in the value chain.

The ongoing re-pricing suggests the market is reassessing how AI may affect different parts of the software stack, with uneven outcomes across business models.

_{Disclaimer - This content is provided for informational purposes only and does not constitute investment advice, personal recommendations, or an invitation to engage in any investment activity. The information presented is derived from publicly available sources and should not be solely relied upon for making investment decisions. Always consult with a qualified financial professional before making investment choices. Past performance is not a guide to future performance.}

^{About AIIP - The AIIP Index tracks 173 AI-focused public companies across the full AI stack, serving as our benchmark for sector performance. All scores are proprietary and calculated using data from Finbox (powered by S&P Global Intelligence). AIIP Total Score (0–100) combines metrics for sales and EPS growth, financial quality, and valuation to assess overall business strength. AIIP Relative Strength (RS) Score measures a stock’s price performance relative to the AIIP 173 AI stocks. Ranking Status is based on score combinations: Fundamental: Total Score ≥ 70, RS < 80. Momentum: RS ≥ 80, Total Score < 70. Watchlist: Total Score ≥ 70 and RS ≥ 80}

TOP AI STOCKS PERFORMANCE

TOP AI ETFs PERFORMANCE

AI STOCKS IDEAS

This Overlooked AI Stock Could Be A Surprise Winner In 2026 – Finviz
Strong growth forecasts combined with apparent undervaluation suggest this lesser-known AI stock could significantly outperform in 2026.

Two AI Stocks Could Soar 100% – The Motley Fool
CoreWeave and Meta Platforms are highlighted as compelling AI investments during a bear market, with analysts pointing to their positions in AI infrastructure and advertising innovation as catalysts for potential long-term gains.

An Under-The-Radar AI Stock With Explosive Growth Potential – Yahoo Finance
UiPath, a leader in agentic AI, has seen its share price fall sharply but continues to post strong profitability metrics. With double-digit earnings growth and expanding market demand, the company may be positioned for a meaningful rebound.

AI STOCKS & ETFS NEWS

Nvidia’s Huang Pushes Back On Fears AI Will Replace Software – Investing.com
Nvidia CEO Jensen Huang argued that AI is designed to enhance, not replace, traditional software tools. His comments come amid a sharp global sell-off in software stocks, affecting major US and Asian technology firms.

Broadcom Shares Slide As Investors Question The AI Trade – Invezz
Broadcom’s stock dropped 6% on Tuesday, fuelling concerns around stretched valuations and near-term weakness in AI-linked equities, despite the company’s strong long-term performance outlook.

Forget AI Stocks: Why This Infrastructure REIT Matters – Finviz
American Tower’s acquisition of CoreSite data centres strengthens its exposure to AI-driven demand, providing critical infrastructure for financial services and cybersecurity firms.

AI STARTUPS

AI-Powered Fragrance Startup Osmo Raises $70m – Glossy
Osmo has secured $70 million in Series B funding to accelerate development of its AI-driven digital “map of odour”, enabling faster discovery of sustainable fragrance ingredients.

US AI Cybersecurity Startup Expands Into India – The Economic Times
Operant AI has launched operations in India, focusing on protecting real-world AI systems from rising cyber threats.

TRENDS

Physical AI At CES 2026: What It Means For The Real World – Medium
CES 2026 showcased the rise of physical AI, with advances in robotics and on-device intelligence enabling real-world autonomy and decision-making.

CEOs Expect Slower, More Cautious AI Adoption – Cyber Daily
A global survey finds executives remain optimistic about AI’s long-term value but expect more cautious implementation through 2026.

OTHERS

How AI Is Reshaping Business Models – GIS Reports
An in-depth look at how AI is transforming business models across industries, from operations to service delivery.

Sam Altman Calls Moltbook A Likely Fad – Reuters
OpenAI CEO Sam Altman dismissed the AI social network Moltbook as a short-lived trend while backing the long-term potential of open-source AI tooling.

_{Disclaimer - The information contained on this newsletter does not constitute investment advice or a personal recommendation, nor is it an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investments, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all. The information presented is based on publicly available data and sources believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Market conditions can change rapidly, and the information provided may no longer be up to date. This content is for informational purposes only and should not be construed as financial, legal, or tax advice. Data sources: S&P Global Market Intelligence}