The "SaaS-pocalypse" isn't about AI replacing software overnight. Instead, AI's disruptive potential erases the decades-long growth certainty that justified high SaaS valuations. Investors are punishing this newfound unpredictability of future cash flows, regardless of current performance.
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The rise of agentic coding is creating a "SaaSpocalypse." These agents can migrate data, learn different workflows, and handle integrations, which undermines the core moats of SaaS companies: data switching costs, workflow lock-in, and integration complexity. This makes the high gross margins of SaaS businesses a prime target for disruption.
The downturn in software stocks isn't tied to current earnings. Instead, investors are repricing the entire sector, removing the premium they once paid for its perceived safety and stable, long-term contracts, which are now threatened by AI disruption.
AI is making core software functionality nearly free, creating an existential crisis for traditional SaaS companies. The old model of 90%+ gross margins is disappearing. The future will be dominated by a few large AI players with lower margins, alongside a strategic shift towards monetizing high-value services.
Ben Thompson's analysis suggests the era of siloed SaaS growth is over. With AI enabling infinite software creation, companies will be forced to attack adjacent business functions to grow. This shifts the market from collaborative expansion to a competitive battle for existing customer spend, with AI model providers as the key "arms dealers."
The recent software stock wipeout wasn't driven by bubble fears, but by a growing conviction that AI can disintermediate traditional SaaS products. A single Anthropic legal plugin triggered a massive sell-off, showing tangible AI applications are now seen as direct threats to established companies, not just hype.
Software has long commanded premium valuations due to near-zero marginal distribution costs. AI breaks this model. The significant, variable cost of inference means expenses scale with usage, fundamentally altering software's economic profile and forcing valuations down toward those of traditional industries.
For over a decade, SaaS products remained relatively unchanged, allowing PE firms to acquire them and profit from high NRR. AI destroys this model. The rate of product change is now unprecedented, meaning products can't be static, introducing a technology risk that PE models are not built for.
The ongoing decline in growth rates for public SaaS companies has created an existential crisis around revenue durability. Investors have lost confidence that traditional SaaS models can sustain growth in the face of AI disruption, leading to a massive valuation collapse.
SaaS products like Salesforce won't be easily ripped out. The real danger is that new AI agents will operate across all SaaS tools, becoming the primary user interface and capturing the next wave of value. This relegates existing SaaS platforms to a lower, less valuable infrastructure layer.
Sierra CEO Bret Taylor argues that transitioning from per-seat software licensing to value-based AI agents is a business model disruption, not just a technological one. Public companies struggle to navigate this shift as it creates a 'trough of despair' in quarterly earnings, threatening their core revenue before the new model matures.
