China’s software sector is likely to emerge as a major beneficiary of the rapid adoption of artificial intelligence, according to analysts at HSBC, who said concerns that AI could undermine traditional software firms now appear overdone.
In a research note released Thursday, HSBC analysts Yiran Liu and Heng Zhang argued that fears surrounding large language models replacing enterprise software providers have weighed too heavily on valuations across the sector.
Those concerns have left Chinese software stocks trading below historical averages, even as demand for AI-enabled products and services continues to accelerate.
“We believe AI creates opportunities for the software sector rather than posing a threat,” the analysts wrote, citing software firms’ expertise in business workflows, regulatory compliance and data security — areas where AI models still face limitations.
The report comes at a time when global software and services stocks have come under pressure following the launch of new AI tools from Anthropic, which reignited investor concerns about disruption across the software industry.
The S&P 500 software and services index has fallen about 15% year-to-date amid those fears.
Lower AI costs support growth
HSBC said falling AI model costs and improving coding efficiency are helping Chinese software firms accelerate product development, launch new features faster and adapt their business models more effectively.
The brokerage added that alternative pricing strategies, including workflow-based and outcome-based charging models, could further support earnings growth as enterprise AI adoption increases.
Analysts said software companies remain well positioned because they already possess deep operational knowledge and established relationships with enterprise customers.
The report also highlighted the growing role of AI-related revenue among Chinese software providers.
According to HSBC, AI-related orders are expected to account for around 7% of total revenue on average for full-year 2025, up from roughly 6% earlier in the year.
International expansion is also emerging as an important growth driver, with overseas customers showing greater willingness to pay for AI-powered software subscriptions.
Intsig, ArcSoft, Kingdee, Yonyou emerge as preferred stocks
Among individual names, HSBC initiated coverage on Intsig and ArcSoft with “buy” ratings.
The brokerage said Intsig, which specializes in smart text-recognition software, and ArcSoft, an imaging algorithms developer, are both well positioned to monetize AI through new applications and overseas growth opportunities.
HSBC also identified enterprise software providers Kingdee International Software Group and Yonyou Network Technology as potential beneficiaries of increasing demand for AI-native enterprise resource planning tools.
The brokerage said an improving earnings outlook and rising AI order momentum could eventually drive a broader re-rating of China’s software sector.
Enterprise software still central
HSBC’s latest comments build on a separate research note published earlier this year, in which analyst Stephen Bersey argued that software would remain the main channel through which large corporations adopt AI technologies.
“Software will be the primary mechanism for the diffusion of AI across the world’s largest enterprises,” Bersey wrote, adding that 2026 would mark “the kick-off for monetization within software.”
He also noted that major AI model developers still have “little to no experience creating ‘enterprise class’ software,” suggesting traditional software companies retain a significant competitive advantage in complex corporate environments.
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