At the beginning of 2026, Wall Street decided that artificial intelligence was going to kill the software industry.
And investors didn’t waste any time pulling the plug.
Some of the biggest software stocks in America plunged over fears that AI would make competing products cheaper to build and threaten the industry’s lucrative subscription model.
They even came up with a name for it.
The “SaaSpocalypse.”
But eight months later, it seems that Wall Street might have been too quick to bury the software industry.
In fact, there’s a strong case that AI could make some software companies more valuable than ever.
Putting the SaaSpocalypse On Hold
Going back to the beginning of the year, it’s easy to see why folks were so worried about the software industry.
I was too.
After all, AI was suddenly making it a lot easier to write software. Coding agents could produce in minutes what once took a programmer hours or even days to create.
And why pay millions for software when AI might soon be able to build it for a fraction of the time and cost?
Investors weren’t willing to wait around to find out.
During the first quarter, the publicly traded SaaS companies tracked by First Analysis fell an average of 24%.
That was more than 5X the S&P 500’s 4.6% decline.
Of those 99 stocks, 52 fell more than 30%. Only five finished higher.
And some of the biggest names in the industry took a beating. Salesforce (NYSE: CRM), SAP (NYSE: SAP), Snowflake (NYSE: SNOW) and Workday (Nasdaq: WDAY) all fell more than 30%.
But it wasn’t because their businesses were collapsing.
In fact, revenue across the group had grown 17% the previous year, and analysts still expected roughly 13% growth in both 2026 and 2027.
In other words, Wall Street was pricing in a disruption that hadn’t shown up yet.
Andreessen Horowitz’s research helps explain why.
Its researchers examined a broader group of publicly traded software companies and found that roughly 75% are now profitable. Yet back in 2022, most of them were losing money as they spent heavily to grow.
And something else has changed.
Only about 30% of public software companies today are growing revenue by more than 20% a year.
When interest rates were near zero, investors were willing to pay enormous valuations for software companies growing 30%, 40% or 50% a year, even if they weren’t making money.
But these days software companies are generally healthier businesses. They’re just growing more slowly. And slower-growing companies typically don’t command the same valuations as faster-growing ones.
So part of this year’s SaaSpocalypse may have had less to do with AI destroying software than with Wall Street adjusting to a slower-growing industry.
That doesn’t mean AI isn’t a threat to the software industry. It absolutely is.
But not all software companies are equally vulnerable.
If a company is using software to manage millions of customer records, process payroll or run an entire supply chain, the value of those systems isn’t just in the code that runs them. It’s in the data they contain, the other systems they’re connected to and the years of business processes built around them.
AI can’t easily replace all of that. But it can make those systems a lot more useful.
Consider a company that uses software to track its inventory. Today, its employees might use that system to see what’s in stock, what’s been sold and what needs to be ordered.
But what happens when you connect an AI agent to that same software?
Instead of simply tracking inventory, the AI could predict when supplies are running low, place orders automatically and help the company avoid running out of popular products.
But it can’t do any of that without access to the information stored in the company’s existing systems.
Suddenly, software that was mostly used to keep records could also help run the business. And that makes it more valuable, not less.
Investors appear to be reconsidering what software companies might be worth as well.
After falling 24% in the first quarter, First Analysis’ group of SaaS stocks rebounded nearly 19% in the second quarter.
And some parts of the industry did much better. Cybersecurity stocks jumped almost 50%, while data-management companies gained more than 44%.
That makes sense when you consider what happens as businesses put more AI agents to work.
Those agents will need reliable information to make decisions. And as companies give them more responsibility, they’ll need better ways to protect that information and prevent costly mistakes.
That’s why I believe calls for a SaaSpocalypse might have been a bit premature.
Here’s My Take
I think Wall Street was right to question what AI means for the future of software.
But Andreessen Horowitz’s research suggests that we’re not facing an industry wide collapse today.
Some software companies have competitive advantages that will be difficult to replace. And as businesses adopt more AI, those advantages could become even more valuable.
But I’m not convinced that the world’s biggest software companies are safe from AI.
In fact, something happened last week that made me question just how quickly it could transform the industry.
Tomorrow, I’ll show you what happened and why it could be the strongest argument yet that the SaaSpocalypse is only getting started.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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