A market bifurcation is underway where investors prioritize AI startups with extreme growth rates over traditional SaaS companies. This creates a "changing of the guard," forcing established SaaS players to adopt AI aggressively or risk being devalued as legacy assets, while AI-native firms command premium valuations.

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.

By publicizing its internal AI-powered tools for sales, finance, and support, OpenAI signaled its ambition to enter the enterprise application market, directly challenging SaaS incumbents and causing HubSpot's stock to fall.

Unlike prior tech cycles with a clear direction, the AI wave has a deep divide. SaaS vendors see AI enhancing existing applications, while venture capitalists bet that AI models will subsume and replace the entire SaaS application layer, creating massive disruption.

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.

The lucrative maintenance and migration revenue streams for enterprise SaaS, which constitute up to 90% of software dollars, are under threat. AI agents and new systems are poised to aggressively shrink this market, severely impacting public SaaS companies' incremental revenue.

Wall Street believes AI is 'eating' software, causing stocks for giants like Salesforce and Oracle to plummet. AI tools like Anthropic's Claude Code, which can create software from simple prompts, threaten to undercut the value proposition of traditional Software-as-a-Service (SaaS) companies by democratizing and simplifying software creation.

The fundamental shift from AI isn't about replacing foundational model companies like OpenAI. Instead, AI creates a new technological substrate—productized intelligence—that will engender an entirely new breed of software companies, marking the end of the traditional SaaS playbook.