China’s artificial intelligence model companies are unlikely to “eat up” the domestic software market because they lack the deep industry know-how and experience to meet enterprise needs, according to an HSBC analyst.

Unlike the US, China’s less developed software-as-a-service (SaaS) market stands to gain even as AI models continue to improve, with the most likely outcome being a collaborative approach where model companies and legacy software firms serve enterprises in tandem, said Yiran Liu, head of A-share IT software research at HSBC Qianhai Securities.

The analysis comes as continued AI progress sparked a “SaaSpocalypse” earlier this year in the financial markets, as investors turned away from traditional SaaS giants amid fears that new agentic AI products such as Anthropic’s Claude Cowork and OpenAI’s Codex would eliminate the need for traditional software firms.

Notable US software giants including Salesforce and Adobe are both down around 30 per cent this year. The slump has extended to China, with the Hang Seng China A Software & Services Index down 19 per cent from a high in mid-January.

However, there was a gulf between investor sentiment and what was happening on the ground in China, said Liu, who is based in Beijing. Rather than being eaten up by new AI products, legacy Chinese SaaS firms are integrating AI into their offerings and seeing “significant robust growth” as a result, she said.

Shenzhen-based Kingdee International Software Group, one of China’s largest SaaS providers, last month announced revenue guidance of 1 billion yuan (US$146 million) this year for its AI products, a 180 per cent jump.