Analysts from Morgan Stanley have indicated that European software stocks are facing threats from insourcing and competition from startups. The analysts noted that advancements in AI tools are making it easier for companies to develop applications in-house. They further added that startups focusing on niche AI applications are innovating at a faster pace compared to larger software firms. The analysts also highlighted that software stocks are being impacted by a decline in employee numbers at client companies, as some software providers operate on a per-seat licensing model. Year-to-date, the Stoxx Europe Software and Computer Services Index, which tracks European software stocks, has fallen by approximately 16%, although it managed to recover some losses with a 0.7% gain on Monday.