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\n Tech companies are giving the world artificial intelligence \u2014 but ironically, the tech sector itself is among those now feeling the most pain from AI.\n <\/p>\n
\n The rise of AI tools that can write and develop code is clouding the outlook for the software industry, investors say, sending shares in those companies into a slump.\n <\/p>\n
\n Software as a service, or \u201cSaaS,\u201d is a bread-and-butter business model that is now at risk of disruption because of AI, investors say, a microcosm of how AI could upend the way many businesses operate.\n <\/p>\n
\n Shares in software giant Salesforce (CRM<\/a>) are down 26% this year, making it the second-worst performing stock in the Dow.\n <\/p>\n \n Meanwhile, Adobe (ADBE<\/a>) shares are down 19% this year. Shares in Atlassian (TEAM<\/a>), which owns applications like Trello, are down 30% over the same time.\n <\/p>\n \n In comparison, the benchmark S&P 500 is up 10% this year, while the tech-heavy Nasdaq Composite is up 11%.\n <\/p>\n \n \u201cSoftware valuations remain under pressure from the \u2018death of software due to AI\u2019 narrative, which likely drives continued volatility in the short term,\u201d Matthew Hedberg, a software research analyst at RBC Capital Markets, said in an August 12 note.\n <\/p>\n \n The market is reckoning with a paradigm shift in software and tech, according to Ted Mortonson, a technology strategist at Baird.\n <\/p>\n \n Software businesses that have been darlings of tech in past years are at risk of falling out of fashion with investors while AI models continue to develop and get better at writing code.\n <\/p>\n \n The traditional SaaS business model includes renting software to customers. But the rise of \u201cagentic AI,\u201d<\/a> or an AI tool that can operate without supervision, is opening the door for companies to cut back on that rental model, Mortonson said.\n <\/p>\n \n Agentic models can write and develop code, encapsulated by the term \u201cvibe coding.\u201d If that can help companies develop their own software, it could threaten established software firms\u2019 seat count or number of subscriptions.\n <\/p>\n \n \u201cThe volatility on this technology pivot to agentic is nothing I have seen in my career, and it\u2019s happening so quickly,\u201d Mortonson said. \u201cYour seat count is under pressure, which is the kiss of death for SaaS.\u201d\n <\/p>\n \n Companies might have anticipated this shift \u2014 but likely didn\u2019t see it happening so fast, analysts say.\n <\/p>\n \n \u201cSoftware right now is under massive pressure because AI is eating their lunch,\u201d Dan Ives, global head of technology research at Wedbush Securities, said. \u201cAdobe and Salesforce, among others, miscalculated how quick the AI revolution was going to eat into their market share.\u201d\n <\/p>\n \n Salesforce did not respond to a request for comment. Adobe and Atlassian declined to comment.\n <\/p>\n \n Marc Andreessen, the venture capitalist and technology investor, famously wrote in 2011 that \u201csoftware is eating the world<\/a>.\u201d\n <\/p>\n \n Jensen Huang, chief executive at Nvidia, said in 2017 that \u201csoftware is eating the world, but AI is eating software<\/a>.\u201d\n <\/p>\n \n Ben Reitzes, head of tech research at investment firm Melius Research, said in a note that he thinks Huang\u2019s view is proving true.\n <\/p>\n \n \u201cThe world is coming around to the reality of the theme that \u2018AI is eating software,\u2019\u201d Reitzes said.\n <\/p>\n \n \u201cAI is making it clear that almost anyone from an able-bodied startup, to a big cloud (like Google) can create an application so great \u2014 that it can compete quickly and potently (like the cloud competed quickly with Dell),\u201d he said in an August 10 note.\n <\/p>\n \n One of AI\u2019s biggest cheerleaders, OpenAI CEO Sam Altman, earlier this month posted<\/a> on social media: \u201centering the fast fashion era of SaaS very soon.\u201d\n <\/p>\n \n Software companies also face competition from the big tech giants. Companies like Microsoft (MSFT<\/a>) and Oracle (ORCL<\/a>) are expanding their AI capabilities.\n <\/p>\n \n Microsoft CEO Satya Nadella said on his company\u2019s earnings call in July that a shift is taking place: \u201cAI is driving a fundamental change in the biz apps market as customers shift from legacy systems to agentic business applications.\u201d\n <\/p>\n \n \u201cAI, in many respects, has disrupted this traditional software subscriber-based model,\u201d said Angelo Zino, a tech analyst at CFRA Research.\n <\/p>\n \n However, Zino said it\u2019s less certain whether AI is going to replace software.\n <\/p>\n \n \u201cThere\u2019s definitely concerns out there,\u201d Zino said. \u201cThe best way to put it is that the jury is still out in many respects.\u201d\n <\/p>\n \n There are some doubts on the value of AI and whether it will provide a meaningful shift away from legacy companies like Adobe that have built long-time subscriber bases.\n <\/p>\n \n \u201cThere\u2019s a threat to the model, but there are also still opportunities for these companies to prosper and adapt in this changing environment,\u201d Zino said. Salesforce, for example, has its own AI agent tool called \u201cagentforce.\u201d\n <\/p>\n \n Wall Street is uncertain whether AI will truly be able to replace SaaS. But shares in software companies have slid this year as investors have tried to mitigate losses in their portfolios.\n <\/p>\n \n \u201cFor now, they\u2019re missing the train,\u201d Ives said. \u201cI believe software is going to rebound, and they\u2019ll find their way out of this to monetize and participate in the AI party.\u201d\n <\/p>\n \n Brent Thill, an equity analyst at Jefferies, said in a note that he thinks software AI fears are overblown.\n <\/p>\n \n \u201cAI is a transformational wave, not a destructive hurricane for software,\u201d he said.\n <\/p>\n \n Thill, who said he recently met with partners at Salesforce, said they are seeing some headwinds due to AI but believes they will ultimately rebound.\n <\/p>\n \n \u201cPartners agreed that fears are overblown on AI replacing software, with many highlighting the shortcomings of vibe coding,\u201d he said.\n <\/p>\n![\"Salesforce](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/08\/gettyimages-2046166963.jpg\")
<\/p>\n![\"Microsoft](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/08\/gettyimages-2215435786.jpg\")
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