The SaaSpocalypse
Software stocks are tumbling, AI agents are rising
The software industry is getting clobbered recently. SaaS companies with varying degree of “boomerness” along the spectrum SAP-to-Figma are seeing double digits % drops in valuation, under the menace represented by Claude Code and Claude Cowork. The “SaaSpocalypse” has arrived. In January alone, the S&P North American software index plunged 15%, its worst one-month drop since 2008.
Meanwhile, some of “The Magnificent 7” get punished for over-investing in it. Amazon just announced a $200B capital spending plan for 2026 (versus $146B expected) and the stock fell 11% overnight.
It’s a wild mood swing. Damned if you do, damned if you don’t. For years, enterprise software was a sure bet, due to high margins and sticky subscriptions. Now companies that merely met earnings have seen their shares nosedive because meeting expectations is not enough with the AI barbarians at the doors. At the same time, we are still in “Is AI a bubble?” mode, so bloated capex faces investor backlash.
Some big SaaS names have been absolutely hammered over the past year. Atlassian, HubSpot, GitLab have all lost 50% to 70% of their value in the last 12 months. Even industry giants like Salesforce and Adobe, while not as crushed, have seen their growth multiples compress sharply.
The anxiety spiked recently when Anthropic released an extension to Cowork especially tailored to automate basic legal tasks, and legal-tech stocks promptly tanked. Large companies use hundreds of different SaaS applications (one survey found some big enterprises juggling 447 distinct tools). This sprawling fuels concerns that AI alternatives could replace at least a few of them and save money.
This article is a good anchor to navigate these perilous times. Longtime software investor Stefan Waldhauserard argues that the rumors of SaaS death are greatly exaggerated. He points out that not all SaaS products are the same.
System of Record (SoR) are deeply entrenched systems that handle critical data, transactions, compliance, and business rules. Think ERP systems, CRM databases, HR and finance ledgers that serve as the source of truth for the organization. Replacing them is not like switching from Slack to Microsoft Teams. You need to drop a nuke to carve out SAP from a large corporation.
Above it sits the System of Engagement (SoE). This is the user interface and workflow layer, all the dashboards and apps employees click to do their work. This layer is the most exposed to disruption.
I don’t think a lot of enterprises will decide to vibe code an in-house Slack. Why you want to build, expand, maintain and be on-call for your home-brewed Slack, instead of contributing to the core business and top line revenue? However, AI can absolutely transform the System of Engagement for those thin wrapper SaaS products that add very little. AI external tools will attack that layer of the software stack, and we will see many vendors fighting back and integrating AI in their products, hopefully in a more serious and less goofy way1.
In a great piece from SemiAnalysis, SaaS applications are described as “crystallized” business workflows, with very high profit margins (75% gross margins for SaaS are common), which makes them a nice target for automation. AI agents can be used to to call APIs and shuffle data coming from multiple System of Records to become a very personalized workflow, paid for with Anthropic tokens rather than seats to a now defunct SaaS vendor2. The friction that kept companies tied to dozens of specialized apps is reducing. Data lock-in, workflow lock-in, integration complexity could come down under the hammer of an AI agent.
This is a very transformative moment, and we are likely witnessing a productivity event, but I don’t think the sky is falling even if some stock prices are. The current sell-off feels like a classic overreaction, with over-optimism and over-pessimism at the same time. As usual, only time will tell.
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Did you see Workday AI? It’s total crap.
This would also be a threat to Zapier.