Why software stocks are getting pummelled

https://www.economist.com/business/2026/02/01/why-software-stocks-are-getting-pummelled

by petethomas • 6 months ago

185 278 6 months ago

ciconia• 6 months ago

dheera• 6 months ago

It always amuses me because the people complaining about stocks going down are always the same people who are causing them to go down. Losing money was a choice that those people collectively made. They could have chosen to act differently, in light of the optimistic long-term future.

dasil003• 6 months ago

No doubt! Collective action is a solved problem! Why do people do things other than the obvious Right Things we can all agree on? Must be some kind of mass psychosis…

bnchrch2• 6 months ago

QQQ is up 20% over the last year.

GOOG is up 70% over the last year.

"Pummelled" seems extremely sensational...

airstrike3• 6 months ago

GOOG is now also an AI company, so not exactly a fair comp as it doesn't fit neatly into the "software" bucket

MSFT is only up 3% over the last year

jen729w• 6 months ago

You didn't read the article. The first graph plots Workday, Salesforce, SAP, and ServiceNow. Google isn't mentioned.

bnchrch2• 6 months ago

Maybe they shouldve said ERP stocks are getting "pummelled"

cess11• 6 months ago

Some 7-15% down in a trading day is a lot for an established corporation. I consider Salesforce dropping 7% without some obvious trigger to be at least somewhat newsworthy, and from the first sentences in the article I get the impression that The Economist is sitting on more examples like that.

A lot of people are tense about the AI venture ouroboros and what it might mean for future software, especially people with money and little to no experience actually deploying software.

Edit: At the time I saw some memes claiming that roughly 1.5 trillion dollars in market value had evaporated, which if true is not a small sum.

bagacrap3• 6 months ago

Google makes very little money selling enterprise software

llmslave4• 6 months ago

Software will be easy to create, which will kill moats and margins on existing products. The game is up for pure saas. Smart money started pricing this in one year ago

skissane4• 6 months ago

For a lot of SaaS firms, a big part of their value is the domain knowledge and best practices encoded in the software.

Current AIs often do a bad job of that. Sure, they know a lot of it. But they also get a lot of it wrong, and can’t tell the difference between genuinely good advice, and advice that sounds good but is practically worthless or even harmful.

(Of course I’m biased since I work for a SaaS firm. But I’m talking about them in general, not just my current employer.)

llmslave4• 6 months ago

ai will know the domain knowledge

idle_zealot2• 6 months ago

Was the hard part ever really the software, though? It's the Service part of SaaS that seems to provide the moat. Lock-in, habits, workflows, integrations, and trust. And don't discount the appeal of making some part of your operations "someone else's problem." Could you hire engineers or use an LLM to make your own Google Docs? Probably, yeah, but would that be worth the headache of being responsible for a bespoke internal document system?

airstrike3• 6 months ago

the problem is an AI can figure out habits and workflows pretty seamlessly. lock-in is artificial and loses power when it's really easy to make a competing app for large swaths of web apps.

integration is likely the most valuable part of the puzzle, but it's also prone to disruption

I think all that's left are like <50 apps each with their own very bespoke and "power user"-ready interface

llmslave4• 6 months ago

yes, if it takes one month to build something that took 9 months previously, it completely changes your go to market strategy

senko• 6 months ago

Could you hire engineers or use an LLM to make your own Google Docs

Or you can just ask your LLM to install https://github.com/CollaboraOnline/online

Between open source, LLMs, and SaaS vendors getting greedy and privacy invasive, the total pain minimization calc might shift for some orgs.

jonathaneunice• 6 months ago

You might think you can, for a while. Been there, done that. But you probably can not do so sustainably in most cases. Even if you could, would you really be better off building vs. buying? Outsourcing development, operations, and maintenance is almost always the better choice, letting you focus on the things you do uniquely, differentiably, or meaningfully better.

"We have this awesome internal version of Docs that we're responsible for fixing, upgrading, and doing support for" is not the flex "AI can code anything!" aficionados think it is. Especially when you also have similar internal versions of Sheets, Jira, Slack, GitHub, Linux, Postgres, and 100 other tools.

bryanlarsen3• 6 months ago

The article is about SAP, Salesforce, etc.

Making your own Google Docs is stupid unless your company's core business is document management.

OTOH Replacing SAP with a bespoke system will make a lot of sense for many companies.

SAP is already the worst of both worlds. It'll have been highly customized for your flow so you've got all of the headaches of bespoke software and all of the headaches of SaaS. And unlike Google Docs, it'll be highly integral to your core business.

Hamuko• 6 months ago

Can't wait for every hospital to create their own patient record system, every accounting office to create their own accounting software, every car service to create their own timebooking solution, etc.

Supermancho• 6 months ago

Can't wait for every hospital to create their own patient record system

Having worked in healthcare, this is the current state (per provider, not physical building).

ncruces• 6 months ago

We go from left-pad to everything vibe coded. No one vets deps, no one vets vibes. Zero common sense.

tjr• 6 months ago

What would be some examples of some current software products for which you expect the game is up?

Are there any software products that you think will survive?

aurareturn3• 6 months ago

I totally agree with you and I think it's weird how people are downvoting you.

Software is much easier to create. It used to take 100 people to create a competitor SaaS product. Now it might take 3 people.

Traditional SaaS companies that don't have a data moat is in trouble.

Physical companies will dominate more than SaaS companies in the future. By physical, I mean energy and chips companies.

lateforwork• 6 months ago

The fear is that these [AI] tools are allowing companies to create much of the software they need themselves.

AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.

airstrike3• 6 months ago

yes but investors don't know that

or for a more charitable comment, I think the issue people struggle with right now is how much of non-AI software will be replaced by AI-native versions. and it's not even a 1:1 mapping. we may see 5 different small companies replaced by a single AI interface. all TBD, but there's merit to avoiding that risk right now if you can just allocate to NVDA and GOOG instead

KellyCriterion2• 6 months ago

yes, but this does fit into the head of MBA-bobo-management stylers, who believe ChatGPT will replace everyone :)

the_gipsy• 6 months ago

Yes, it's just that some companies will fail to adapt, but there will be new jobs.

llmslave4• 6 months ago

cost will go down 70-90%

kawera• 6 months ago

SaaS margins too.

firstplacelast• 6 months ago

Stock prices are very forward looking, so if half the hype being sold about AI is true I would expect most software-centric companies to be devalued by wall-street (as the test, deploy, support should be automated in the coming years...according to the AI CEO's).

However, if I was a wall street analyst and believed the AI dreams I would further be concerned that software companies aren't taking advantage of the last remnants of value before software (and maybe labor) values go to zero.

If you've got a gold mine and have recently built the most efficient shovels in the world, why are they not bringing in mass amounts of workers to utilize these shovels before all the neighboring mines. Once all that gold is on the market, the price crashes so it's better to be one of the first mines to get in and dig out all possible value first.

I think you either don't believe in the AI hype, which means a lot of silicon valley companies are tremendously overvalued. Or you do, in which case another huge part of silicon valley is overvalued especially when they are not looking to out-innovate their peers (as evidenced by downsizing), but just riding the wave of AI until what they are selling has no marginal value over some guy coding alone in his bedroom. SV is putting itself into a weird position, but still has some time for financial buffoonery before the party stops.

falloutx9• 6 months ago

If you've got a gold mine and have recently built the most efficient shovels in the world, why are they not bringing in mass amounts of workers to utilize these shovels before all the neighboring mines

Because they are completely consumed by the need to increase margins, which they think they will be able to do it with AI by laying off a lot of people. But Saas economy is connected and based on per user pricing, so as layoffs continue, Saas economy is showing its biggest weakness. All of Saas companies also seem to embrace AI so much that they would rather add another summarise button rather than actually making something which cant be copied easily by competitors.

SimianSci4• 6 months ago

"Small Monthly Fee" is a very loaded term here. Im in the negotiations for these platforms, the price that many of these companies command for their products will very often pay the salaries of a whole software department. Add to this the quality of support being the lowest possible option above "nonexistant" and I would say the risk to these SaaS companies is real.

The real benefit of these types of SaaS offerings was their ubiquity across multiple industries and verticals. If a company bought Salesforce, they could very readily find employees that would be able to quickly onboard since they would likley have used it at previous companies. AI software generation is changing this as more and more software being created is bespoke and increasingly one-of-a-kind with these tools allowing companies to create software that fits their unique and specific needs.

My hot take here is that the moats previously enjoyed by SaaS companies will increasingly vanish as smaller and smaller teams can assemble "good enough" solutions that companies will adopt instead of paying giant chunks of their budget on pre-built SaaS tools that will increasingly demand more training to Onboard.

falloutx9• 6 months ago

Saas was always fueled by B2B buying through same investor circle. sequoia companies buying from other sequoia companies, softbank companies buying from other software companies. Without this circular buying and selling of the software, the whole B2B software market crashes.

louiereederson5• 6 months ago

My hot take here is that the moats previously enjoyed by SaaS companies will increasingly vanish as smaller and smaller teams can assemble "good enough" solutions that companies will adopt instead of paying giant chunks of their budget on pre-built SaaS tools that will increasingly demand more training to Onboard.

why do people pay red hat/ibm for rhel? they earn pretty good margins too. to parent's point on software/=code

gmueckl3• 6 months ago

There is one big argument against these "good enough" solutions: commercial business software providers need to put a lot of R&D into finding generalized workflows that apply to as many clients as possible. Effectively, they find and encode current standard practices into their products. This is valuable from a business operations perspective in two ways: it's a good bet that transitioning the customer's operations to match the software is cleaning up internal processes, and it makes onboarding new employees easier because the tools and workflows should be much more familiar right from the start.

mattmaroon2• 6 months ago

A lot of these companies are not small monthly fees. And if you’ve ever worked with them, you’ll know that many of the tools they sell are an exact match for almost nobody’s needs.

So what happens is a corporation ends up spending a lot of money for a square tool that they have to hammer into a circle hole. They do it because the alternative is worse.

AI coding does not allow you to build anything even mildly complex with no programmers yet. But it does reduced by an order of magnitude the amount of money you need to spend on programming a solution that would work better.

Another thing AI enables is significantly lower switching costs. A friend of mine owned an in person and online retailer that was early to the game, having come online in the late 90s. I remember asking him, sometime around 2010, when his Store had become very difficult to use, why he didn’t switch to a more modern selling platform, and the answer was that it would have taken him years to get his inventory moved from one system to another. Modern AI probably could’ve done almost all of the work for him.

I can’t even imagine what would happen if somebody like Ford wanted to get off of their SAP or Oracle solution. A lot of these products don’t withhold access to your data but they also won’t provide it to you in any format that could be used without a ton of work that until recently would’ve required a large number of man hours

wtp1saac3• 6 months ago

If it is not a small fee, I do wonder - is there still advantage to having a provider which one may take out a lawsuit against if something goes wrong? To what extent might liability and security vetting by scaled usage still hedge against AI, in your view?

paulpauper• 6 months ago

Modern AI probably could’ve done almost all of the work for him.

no way. We're not talking a standalone AI created program for a single end-user, but entire integrated e-commerce enterprise system that needs to work at scale and volume. Way harder.

datsci_est_20152• 6 months ago

Our company just went through an ERP transition and AI of all kinds was 0% helpful for the same reason it’s difficult for humans to execute: little to no documentation and data model mismatches.

solomatov2• 6 months ago

But it does reduced by an order of magnitude the amount of money you need to spend on programming a solution that would work better

Could you share any data on this? Are there any case studies you could reference or at least personal experience? One order of magnitude is 10x improvement in cost, right?

stefan_• 6 months ago

Oh, but that doesn't matter. SaaS tools aren't bought by the people that have to use them. Entire groups in big companies (HR & co) are delegating the majority of their job to SaaS and all failures are blamed on the people who have to interact with them while they are entirely ancillary to their job.

WarmWash3• 6 months ago

I have a prime example of this were my company was able to save $250/usr/mo for 3 users by having Claude build a custom tool for updating ancient (80's era) proprietary manufacturing files to modern ones. It's not just a converter, it's a gui with the tools needed to facilitate a quick manual conversion.

There is only one program that offers this ability, but you need to pay for the entire software suite, and the process is painfully convoluted anyway. We went from doing maybe 2-3 files a day to do doing 2-3 files an hour.

I have repeated ad-nausea that the magic of LLMs is the ability to built the exact tool you need for the exact job you are doing. No need for the expensive and complex 750k LOC full tool shed software suite.

dkarl• 6 months ago

I worked on a product that had to integrate with Salesforce because virtually all of our customers used it. It must have been a terrible match for their domain, because they had all integrated differently, and all the integrations were bad. There was virtually no consistency from one customer to next in how they used the Salesforce data model. Considering all of these customers were in the same industry and had 90% overlapping data models, I gave up trying to imagine how any of them benefited from it. Each one must have had to pay separately for bespoke integrations to third-party tools (as they did with us) because there was no commonality from one to the next.

One thing that's interesting is that their original Salesforce implementations were so badly done that I could imagine them being done with an LLM. The evergreen stream of work that requires human precision (so far, anyway) is all of the integration work that comes afterwards.

robocat3• 6 months ago

So what happens is a corporation ends up spending a lot of money for a square tool [SaaS] that they have to hammer into a circle hole.

You are assuming that corporations have the capability to design the software they need.

There are many benefits to SaaS software, and some significant costs (e.g. integration).

One major benefit of SaaS is domain knowledge and most people underestimate the complexity of even well known domains (e.g. accounts).

Companies also underestimate the difficulty of aligning diverging political needs within the business, and they underestimate the expense of distraction on a non-core area that there is no business advantage to becoming competent at. As a vendor sometimes our job was simply to be the least worst solution.

At least that's what I saw.

jayd16• 6 months ago

Why waste your time on something that isn't your core business when, presumably, the SAASes of the world will use the new tech and lower prices as well?

deadbabe2• 6 months ago

You can use AI for simple stuff.

For everything else, there’s open source.

kube-system5• 6 months ago

Open source doesn't implement, host, and support itself. Some of these software companies stocks are companies selling open source software.

9rx3• 6 months ago

Foundational software requires that, but the foundation is pretty much completely built at this point. The workforce required to keep it running is but a tiny fraction of what was required to build it. The past has shown that innovation in hardware can push for the foundations to be rebuilt, but we've also already got computers basically everywhere now. There may not be some new innovation that requires the foundations to be completely rewritten again.

The little one-off programs that we thought would keep developers busy forevermore don't require engineers. They often don't even require code. LLMs can natively do a lot of things that historically would have required software.

manmal2• 6 months ago

Such black and white thinking. Even the little tools fall apart at first sight of an edge case if they are fully vibed. Neither Opus nor codex are good at architecture, and it’s not clear they ever will be.

rglullis6• 6 months ago

AI-generated code still requires software engineers

No, they don't.

A domain expert armed with an Excel spreadsheet and the ability to write VBA macros will be enough for most business.

zdw2• 6 months ago

Excel spreadsheets have little to no validation logic that you're actually getting a good result, unless you have a secondary check (most spreadsheets are structured as "single entry" accounting, so lack the checks)

A prime example of this was the Reinhart/Rogoff paper advocating austerity that was widely quoted, and then it was discovered that the spreadsheet used had errors that invalidated the conclusions:

https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt#Metho...

Just because technology is in use and "works" doesn't mean it's always correct.

kube-system5• 6 months ago

I guess that's technically true, because "most businesses" are sole proprietorships without any employees... but they could get by just fine with a checkbook and a note pad.

But the reasons the business software sector grew far beyond Excel of the 1990s is because of the inherent limitations in scaling solutions built by business analysts inside of Excel. There's a vague cutoff somewhere in the middle of the SMB market where software architecture starts to matter and the consequences for fuckup are higher than the cost of paying for professionally made software with, importantly, a vendor on the hook for making sure it doesn't fuck up.

1718627440• 6 months ago

That's a software engineer that is limited to an mostly untyped macro language, with worse version control and poor tooling. It's not that software can't be written as an Excel spreadsheet, it is that it is just inefficient and failure prune.

keeda2• 6 months ago

Hmm, I wonder if it would be cheaper to hire a couple of software engineers to vibe-code custom SaaS apps on top of the company's existing data layer instead of paying for a hundred different SaaS subscriptions.

Financial considerations aside, one advantage of having in-house engineers is that you can get custom features built on-demand without having to be blocked on the roadmap of a SaaS company juggling feature requests from multiple customers...

Sleaker2• 6 months ago

I'm at a large company that is building connections between all of its different financial systems. The primary problem being faced is NOT speed to code things, the primary problem at large companies is getting business aligned with tech (communication) and getting alignment across all the different orgs on data ownership, access, and security. AI currently doesn't solve any of this. Throw in needing to deal with regulation/SOX compliance and all the progress you think AI might make, just doesn't align with the problem domains.

skissane4• 6 months ago

one advantage of having in-house engineers is that you can get custom features built on-demand without having to be blocked on the roadmap of a SaaS company juggling feature requests from multiple customers...

Many larger enterprises do both – buy multiple SaaS products, and then have an engineering team to integrate all those SaaS products together by calling their APIs, and build custom apps on the side for more bespoke requirements.

To give a real world example: the Australian government has all these complex APIs and file formats defined to integrate with enterprises for various purposes (educational institutions submitting statistics, medical records and billing, taxation, anti-money laundering for banks, etc). You can't just vibe code a client for them – the amount of testing and validation you have to do with your implementation is huge–and if you get it wrong, you are sending the government wrong data, which is a massive legal risk. And then, for some of them, the government won't let you even talk to the API unless you get your product certified through a compliance process which costs $$$. Or, you could just buy some off-the-shelf product which has already implemented all of that, and focus your internal engineering efforts on other stuff. And consider this is just one country, and dozens of other countries worldwide do the same thing in slightly different ways. But big SaaS vendors are used to doing all that, they'll have modules for dealing with umpteen different countries' specific regulations and associated government APIs/file formats, and they'll keep them updated since they are forever changing due to new regulations and government policies. And big vendors will often skip some of the smaller countries, but then you'll get local vendors who cover them instead.

tossandthrow• 6 months ago

That would justify a good multiple of 5 to 10. Not 30 or above as for high growth companies.

louiereederson5• 6 months ago

multiple of what? there is maybe one software company trading above 30x revenue - palantir. many companies growing at 20% trade at single digit revenue multiples.

themafia3• 6 months ago

AI-generated code

AI "generated" code requires a large base of training data to draw from. If we all stop writing code then there will no new code written. Just rehashes of stolen ideas. There is no long tail to this industry or ideal.

That's very expensive.

As long as you convince someone else to pay the bill who cares? The real problem is are you losing your competitive edge? If everyone else can crank out the same stolen crap you can then there is no reason for you to even exist.

SunlitCat• 6 months ago

That's something i wonder as well. AI needs data to be usable. But what if all the data it gets is just generated by AI?

falloutx9• 6 months ago

Other reason could be that investors think companies are going to lay off a lot of their staff and then that will decrease Saas revenue anyway.

freejazz2• 6 months ago

AI-generated code is not copyrightable and therefore cannot be protected through a conventional licensing scheme.

tesch1• 6 months ago

Support for this claim?

epolanski2• 6 months ago

Atlassian tools for a client like mine (hundreds of employees) can easily cover the expense of internalizing it. It's Jira plus confluence mostly, it's not rocket science.

And that's just atlassian.

Start adding stuff that costs many many many yearly salaries (special software for managing inventories and warehouses) it starts making sense to prototype alternatives internally.

I came to the conclusion that if it's not Teams/SharePoint or the moat is on the extreme legal complexity side (e.g. payrolls), you can at least think of building an alternative that is good enough without needing to be perfect.

bargainbin• 6 months ago

Don’t forget the salary for every dev team having the Atlassian Jira Jockey to mess around with the board all day and make sure the next 7 epics worth of tickets are in the 9 columns and in prioritised order.

Where would we be without them!?

louiereederson5• 6 months ago

jira premium is $15/mo/user for 300 users. you're saying $50k can cover developing the app inclusive of integrations, maintaining it, providing 24/7 service and 3 9s uptime (per the sla)? don't forget compliance and security. maybe the logic is everyone can be fired and replaced with agents?

julienfr112• 6 months ago

I told to my colleague that it would take less time for me to vibe code jira that it would take him to configure it. Sounds crazy ? Not so much : factor the part of jira you use (maybe 10%), the many choices and dimensions you have to configure, the time it take and the complexity it bring. On the other side, the vibe code version have only the fields you want, most of the logic hard written in code (ie epic > story >task...), and that you could do anything any role, any authentication scheme.

ozim2• 6 months ago

Ugh you are aware that Atlassian earlier was providing on-perm edition for years.

You also know how neglected those on-perm instances were?

No one updated those, no one wanted to pay for more CPU/RAM. File storage, I know people who had some random requests to cleanup files from projects because company wouldn’t buy more hard drives. Everyone was nagging at sys admins that they do bad job and at Atlassian that JIRA sucks.

That is mostly why Atlassian pulled off on premise because companies would not update at all, would like to have all new features and also not pay for file storage,RAM, CPU to make it work well.

Don’t forget you still will need to have dedicated employees to deal with AI built solution - because existing employees have work to do.

What we pay for JIRA and Confluence would never offset fact that we pay and it works, NOT A SINGLE EMPLOYEE CARES as they have their job to do.

Spooky23• 6 months ago

Lol. ServiceNow, Oracle, Workday, etc are not small monthly fees. That's what the market is shitting on. (Oracle is different, given the corruption and OpenAI grift angle.)

My buddy works for a company like these. He landed a $5M contract last year, which netted him almost $800k. There's alot of fat to be cooked out of this stuff, and AI will help smaller entrants attack those margins.

AI-based startups like Vanta make it much easier for companies to meet the compliance bullshit the large companies require. Again, it will drive more competition == better values for customers.

chasd003• 6 months ago

There's alot of fat to be cooked out of this stuff, and AI will help smaller entrants attack

truer words have never been spoken. I work in some of these platforms and lead teams of developers who write customizations. These customizations are not rocket surgery, basic CRUD with some logic requirements that can't be met ootb. It's very time consuming and therefore expensive to clients. The significant moat incumbents have is brand recognition and trust. On the other hand, a hot new "Agent First" consulting firm at 1/3 the price would be hard for a director to not at least experiment with.

doctorpangloss• 6 months ago

Haha, maybe… you can stick your head in the sand all you want, but everyone I know whose output is code is delegating 100% of their work to Claude Code today, I cannot see this magically drawing a line at people whose output is configs and emails…

rstuart4133• 6 months ago

> The fear is that these [AI] tools are allowing companies to create much of the software they need themselves.

If that's their fear they don't know much how your typical big businesses functions.

You've dealt with a large, consumer bank? Many of them still run on IBM mainframes. The web front end is driven by pushing buttons and screen scraping 3270 terminal emulators. You would think a bank with all it's resources could easily build it's IT infrastructure and then manage all the technology transitions we've gone through over the past few decades. Clearly, they don't and can't. What they actually do is notice they have to adapt to the newfangled IT threat, hired hordes of contractors to do the work, then fire them when done. After it's done they go back to banking and forget all the lessons they've learnt about building and managing IT infrastructure.

If you want to see how banking and computers should be combined, look at the Fintech's, not banks. But for some reason I don't understand traditional banks still out compete Fintech's. Maybe it's getting your head around both banking and running an IT business it too much for one human mind?

That same pattern is repeated everywhere. Why was everyone so scared of Huawei? It wasn't because they built the gear. It's because the phone telco's have devolved into marketing and finance companies who purchase in the gear from companies like Huawei and rent it out. Amazingly they don't know how to run the gear they purchased, instead get the supplier to install it and maintain it. But that meant what some eyes viewed as an organ of the Chinese communist party was running the countries phones with full access to every SMS and voice call. (Interestingly, IBM pulled the same stunt with the banks back in the day: you didn't buy an mainframe, you leased / rented it from IBM, and they maintained it.)

It's the same story everywhere I look. These big firms stick to the knitting. If you want to see total, utter incompetence in IT go work whose core business doesn't revolve around IT for a while. These are the firms that still choose Microsoft, despite the fact they've seen Sony's Microsoft based IT infrastructure torn apart so badly by North Korea they didn't know who their employees were, how much they owed creditors or how much debtors owned them for a while. Why do they choose Microsoft? Look around - who else allows you to outsource the know how about connecting millions of computing devices in 1000's of offices to a redundant cloud infrastructure that allows them to share data while providing a centralised authentication / authorisation infrastructure. There is only one choice, apart from developing it themselves which is out of the question.

If those businesses did start using what passes for AI today to manage and develop their own IT infrastructure, the result would not be pretty. But for all the shit I'm throwing at them here, I'm confident they are smarter than that. They know their limitations, they haven't done it before, and they won't start doing it now.

bandrami3• 6 months ago

Banks don't write software for the same reason that software companies don't store their own money

aunty_helen• 6 months ago

Hyper custom software can allow your business flows to sync together a lot better than the alternative, using zapier to glue a bunch of mostly poor fits and ending up with Frankenstein processes.

Also, it allows you to pick and choose what you want from where.

We’ve just completed the first month of our internal CRM that has replaced about 500$ a month in subs with something that flows much better and enforces our own internal processes.

nayroclade• 6 months ago

If AI can code, why do you think it cannot handle building, testing, debugging, securing, monitoring, supporting, incident handling, and so on?

Consider incident handling. What if your AI sets up monitoring that detects errors or outages, wakes up an agent, gives it the problem context, then sets it to work so it can debug the issue, produce a fix, then deploy it? You now have an end-to-end system that works 24/7. Many issues will probably be resolved before you've even noticed them.

If your response is, AIs won't ever be smart or capable enough to do this as well as humans, how has that same prediction worked out for coding?

The next generation of AI "coding" tools will essentially be SaaS companies in a box. Agents will code the app, but they'll also test it, debug it, support it, etc. And this will happen in months, not years.

fzeroracer• 6 months ago

Consider incident handling. What if your AI sets up monitoring that detects errors or outages, wakes up an agent, gives it the problem context, then sets it to work so it can debug the issue, produce a fix, then deploy it? You now have an end-to-end system that works 24/7. Many issues will probably be resolved before you've even noticed them.

Have you ever been actually involved in trying to fix an error or outage? Like actually on an on-call rotation where you had to deal with reported issues?

boshalfoshal• 6 months ago

two things:

1. ai being able to code well seems like it would also get pretty close/good at doing basically everything else you described. If coding is a game of reasoning, if you can solve that, you have effectively solved reasoning and you can likely map it to most other problems provided you have a sufficiently good harness and toolcalling setup. 2. Lets assume AI won't replace everyone as point (1) assumes - and it just replaces _most_ people. Under this assumption, we will likely see large swathes of layoffs. Many SaaS companies have a pay per seat model. Less people employed at companies = less seats being paid for = less SaaS revenue.

So not only is there a threat of companies just vibe coding various SaaS-es in house, but there is also a threat that the TAM of many SaaS products (which is typically proportional to the # of employees there are) will actually _shrink_ in size.

I think the main class of SaaS company that will remain in the medium term are the ones in legally touchy or compliance heavy industries - think healthcare, finance and security (workday for example). But even Workday will be affected by point (2) from above. Overall, I think the mid-long term outlook for SaaS, especially "SaaS", is not great.

thephyber2• 6 months ago

It is much cheaper to pay a small monthly fee to a SaaS company.

How often do software projects underestimate their cost and timeframe?

The LLM-written replacement may prove to be more expensive, but may appear to be cheaper initially when all of the costs and budgets are hidden in the “fog of war”.

How effective will vendor messaging warning clients away from writing their own vendor replacements be? Of course a vendor will play up their strengths and will try to play up the clients’ weaknesses. It’s like asking a used car salesman to give you their opinion of a car on their lot — they aren’t seen as neutral observer.

aurareturn3• 6 months ago

  AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.

But it's also much cheaper to develop an alternative SaaS offering, one that is perhaps more custom, nimble, cheaper than the general SaaS out there today.

In the past, maybe it might have taken 2,000 engineers to build a Figma equivalent. Today, it might take 20.

Software will be cheap to develop so competition will be extremely high. Therefore, SaaS companies should not command a high PE ratio in the stock market anymore.

It's physical companies that should command a higher PE ratio. Energy, materials, and chip companies to be exact. This was reversed pre-LLM era.

rreichman• 6 months ago

Which part of Figma can you build with 20 engineers? I think we're still not close to a small team building real-time collaboration software at scale that actually works at the quality level that customers expect.

PeterStuer• 6 months ago

Bespoke software development is a huge market. It is incredibly expensive. AI coding agents are not perfect, but just usable enough to be coached through by a semi-IT-literate business person to write some scripts or a little crud site that's needed for a specific LOB task (typically a 30k-250k range project)

The alternatives before were propose the case to IT, and if lucky it gets put on the planning, outsourced to consultants, and delivered 18 months from now for an astronomical investment in both time and cost. Or go at it yourself with Excell and VBA.

The AI thing will be a just 'good enough' barely working clutch of ugly code. Then again, so was most of the consultant produced code.

ca_tech• 6 months ago

This exactly. How many small businesses were running some sort of Access database built by someone who knew just enough to meet their business process needs? "Brenda always orders these parts on Tuesday so make sure there is a Tuesday ordering table." Eventually some SaaS solution came in and they evolved their business process because of the proposed benefits. I expect we are going to see a resurgence of good enough software created for the real world hodgepodge of business practices. Not a bad thing in the short term as it will creating adequate efficiency, but long term we are going to reap the technical debt. My prediction is that the next SaaS evolution is going to be platforms for these random solutions. Just as Salesforce captured CMS market, someone is going to capture the AI agent market where users can write and host their LOB code agnostic to the rest of their infrastructure stack and 'slightly' reduce that technical debt.

bdavisx• 6 months ago

It is much cheaper to pay a small monthly fee to a SaaS company.

It's not that cut and dried - it all depends on what your company needs from SaaS and how big it is. SaaS companies like Salesforce don't charge a "small monthly fee" - they charge 10s of millions of dollars per month for large corporations. It's not hard at all to push that money towards AI development and have a better solution built in-house now. Yes, it still takes serious project management skills, but so does integrating Salesforce or other large SaaS software.

jeffkumar• 6 months ago

I disagree. I think that DHH proved that is not the case with the AWS bill. They saved millions by getting off of it. As software is now 10x cheaper to create, it's going to really wipe enterprise value away from the incumbents. There's going to be companies in the middle where they are fed up with their bills and they innovate in house and get ahead building solutions that are even closer to what they want. Thankfully, this is good for the software market and gives jobs to all those who were laid off at the big tech companies. At least, that's my hope.

assaddayinh• 6 months ago

Its much cheaper yo devalue the software company via ai hype buy the buisness qnd the integrate the solution behind an ai layer. Aka as the uber proposition. Our taxitokens just got degilded!

poulpy123• 6 months ago

Maybe just maybe, the markets are not as rational as these people think they are

jeroenhd2• 6 months ago

Reminds me of that time when Nintendo's stock exploded after the launch of Pokemon go, only for traders to discover a few hours later that Niantic actually owned the game and correct the situation.

zamadatix• 6 months ago

Nintendo is one of the three 1/3 owners in The Pokemon Company and an early investor in Niantic. I'd be curious how much was actually confusion as to who is making money vs just a normal hype cycle. I'd also be curious how much the game itself made the various owners vs what Nintendo made on the general interest in other Pokemon games/merchandise from the launch.

At the very least, the stock looks to have shot up for most of the launch month with the peak not occuring until July 18th and the stock still being significantly higher at the end of the month https://finance.yahoo.com/quote/NTDOY/history/?period1=14673...

I think the funniest bit of pure confusions was "Zoom Technologies (ZOOM)" being mistaken for "Zoom Video (ZM)" at the start of the pandemic to the point the SEC halted its trading on concerns around the confusion being the only reasonable driver. https://markets.businessinsider.com/news/stocks/zoom-technol...

fatherwavelet• 6 months ago

It is really a type of self serving religious belief in the face of bounded rationality.

On the other hand, these type of companies are really hard to value too.

gloomyday• 6 months ago

A quick way to make me not respect someone's economic opinion is to mention the "Efficient Market Hypothesis." This should be buried 7 palms underground.

iamleppert• 6 months ago

Meanwhile, in the real world, as a software developer who uses every possible AI coding agent I can get my hands on, I still have to watch it like a hawk. The problem is one of trust. There are some things it does well, but its often times impossible to tell when it will make some mistake. So you have to treat every piece of code produced as suspect and with skepticism. If I could have automated my job by now and been on a beach, I would have done it. Instead of writing code by hand, I now largely converse with LLMs, but I still have to be present and watching them and verifying their outputs.

eknkc• 6 months ago

Yeah but just look at what happened within the last 2 years. I was not convinced about the AI revolution but I bet in another 2 years, we won't be looking at the output..

polotics• 6 months ago

Not so sure, there are indiosyncracies now within the various models, I suspect all this is the result of RLHF, and they cause side.effects. I'm not sure that more attention-is-all-you-need is necessarily going to give us another step change, maybe more general intelligence, but not more focus. Possibly also we soon end up with grokked AI's on all side: pushing their agenda whatever you asked... Gemini: "no this won't work with Cloudflare, I created your GCP account, there you go" OpenAI: "I am certain you really wanted me to do all these other tasks and I have done them, you should upgrade your tokens plan" etc (you know how to fill in for DeepSeek and Grok already, right)

falloutx9• 6 months ago

Tech can always hit a plateau, here's to hoping anthropic & openAI run out of money.

headcanon• 6 months ago

I've been coming around to the view that the time spent code-reviewing LLM output is better spent creating evaluation/testing rigs for the product you are building. If you're able to highlight errors in tests (unit, e2e, etc.) and send the detailed error back to the LLM, it will generally do a pretty good job of correcting itself. Its a hill-climbing system, you just have to build the hill.

grwbx• 6 months ago

What an odd article that is just designed to hype the software creation aspect, which doesn't really affect MAGAF.

MSFT went down because of overexposure in AI and because it is clear that people do not want it.

AI weariness is a thing, and if people go off the Internet or advertisers question whether humans or AI swarms are "watching" their ads it is over for the big players.

Trying to salvage the situation by hyping the relatively small code generation (theft) aspect is quite a poor analysis.

likium• 6 months ago

HN crowd did not like AI coding until it got better. How much of the AI hate is because of poor implementation?

falloutx9• 6 months ago

I guess you can classify over-implementation as poor implementation.

nonethewiser2• 6 months ago

Yeah the article doesn't make a lot of sense to me. Guess whose writing software with AI? Software companies.

They mention sites like Base44 and Lovable. Sure, if tons of business was rotating out of software into no code AI solutions the article would have a point. But has a large portion of market cap moved out of AI into a few little no-code startups? Is Salesforce, Service Now, and SAP being replaced with no code applications? No. Absolutely not. These are small, niche companies. It does not explain a large downward movement in an entire industry.

bagacrap3• 6 months ago

FTA:

dedicated software companies [...] are better at using AI to write code

Obviously public market capital cannot rotate into private companies (startups). However it has rotated into non-tech companies, i.e. the firms this article says some believe will benefit from cheaper alternatives/disruptors.

pixelpoet• 6 months ago

What an odd account that is just created to try sway opinions on hot button topics.

Where have I seen this before? Oh right, the entire site, for months now. Nothing suspicious about that at all, I'm sure a swarm of other brand new accounts will reassure me 0.1 microseconds after being created. You guys sure do type fast!

cal_dent• 6 months ago

yes, its continue to grow at as problem. Doesn't detract from the site as a whole, but there is more very very low value noise infiltrating in a way there hasnt been in the past - even in the relatively short time I've been here.

flerchin• 6 months ago

Is the pummeling in the room with us right now? YoY looks phenomenal in my portfolio.

dmoy• 6 months ago

This article I think is about a very specific subset of software stocks.

If you're holding say a total market index fund, or s&p500, or even qqq or many tech index funds, this would get hidden by the so-far very good growth on other tech stocks.

TSiege• 6 months ago

I'd look at things beyond the magnificent seven. Economists and traders have noticed that the SP 500 now has a K shape similar to our class wealth distribution. https://fortune.com/2025/11/10/markets-k-shaped-economy-apol...

_pdp_• 6 months ago

I was one of the nay sayers but right now I am convinced.

That being said, it still requires some engineering background to come up with interesting ideas and solutions with the help of LLMs but even that might be replaced.

luke5441• 6 months ago

So you disagree with the article? Could you explain your reasoning?

wtp1saac3• 6 months ago

Certainly no investor, but my own feelings:

AI replacing vendors feels like a strange risk, though I'm not sure if vendors view things through a technical lens. Security concerns and service maintenance alone, IMO, makes writing internal software a large proposition - one that I would want a trusted vendor if it wasn't a hobby project and I could just afford that. Particularly if that data being lost or broken would severely harm a business.

There are also already frameworks in languages like Python that make putting up an internal website very, very simple. If you don't need production grade, you might have already had a pretty low barrier to entry, if you have the skills to figure out how to host the service you just vibe coded, you can probably figure out some basic django to throw data in its ORM, or find libraries that do the work for you.

AI does feel in those technical ways to be an overstated risk, to me at least.

Far more worrying to me is the breakdown of the USA and its role. We are going to have blocs of software and hardware entirely from competing geopolitical regions, which may not be able or authorized to communicate with one another. Any businesses in the USA with significant CA or EU marketshare right now will decline in value to the degree client companies choose, or are told, to stop using USA systems.

(My own governor in California outright antagonized the Europeans at Davos calling them "pathetic" while telling them to get tough on Trump, which means in practice, stop using US, meaning yes California, tech goods and services. A lot of revenue from tech comes from overseas, and we are going to lose at least some portion of that. Particularly in California which already has budget problems with what revenue it's got. Stunning how even The Guardian treated those remarks as "tough" and not insane and self-destructive... sadly it's nothing compared to the worst of the US right now.)

So, where do you throw investment right now? To the US where the marketshares will likely decline, and the political and trade environment is insanely uncertain, but there is momentum on AI and generally decent hardware design, and the existing software companies and knowledge? To the EU or Canada where maybe a nascent software industry will take hold, or perhaps American companies will relocate talent if the USA collapses into civil conflict? To China, if they end up becoming a hegemon, given their strength in hardware and their growing efforts to invest in software alternatives?

I suppose I read markets don't react to "tensions," and maybe it is unprecedented to modern memory, but I think about these things more than AI.

wtp1saac3• 6 months ago

I would add: open source throws additional curveballs. The EU wants to push for open source, and that is admirable, but I wonder what the sustainable funding model would be, and how that could attract attention. I wonder about business models and ability to generate return on investment.

I would think the saner solution is allowing proprietary companies, but imposing technical standards which companies collaborate on, enabling interoperation. Am I mistaken, that the EU is trying to do this with the DMA? I have heard general overtones, but I haven't looked at it very closely, and our media doesn't cover EU tech regulations in much detail in the US, though in a decent world it would, I wish it would.

SimianSci4• 6 months ago

The Value of software is going down, this much is clear to most people. It will continue to demand proper engineering for its creation and operation. But AI will lead to an increase of unique one-of-a-kind systems created by very small teams. And the world will increasingly rely on these unique systems.

SaaS companies need to start reading the writting on the wall, their massive valuations enjoyed when software was harder to create will need to be justified.

themafia3• 6 months ago

this much is clear to most people.

There are more computers now than there ever have been. More people in more parts of the world have them than ever before. If you have this perspective you may just be locked in a first-world corporate nightmare that has stolen from you all vision and imagination.

KellyCriterion2• 6 months ago

TRUE! Actually the world around is controlled already by computers ~ chips: Your car, your dishwasher, your metro, your holidayjettravel etc.

And it becomes "worse": Billions and billions of chips ~ compusters are produced every year, the number is increasing.

Billions of people will get access to the stuff that was around for us "since ever" for the first time in their whole life.

SimianSci4• 6 months ago

Perhaps the it would be better described as "commodification" of software, which still gets my point across. Software is absolutely more ubiquitous than ever before, this I can agree upon. But now we have the tools to create more of it, and therefore software is less valuable simply as it is less rare. I dont mean to say that software is valueless, but rather that it enjoyed inflated value as the amount of capital and effort required to build a software product was much greater.

nonethewiser2• 6 months ago

I dont actually think it changes the economics of software as a service much. What's true for the small scale is true for the large scale. Sure, it's easier to build your own HR platform now but it's also easier to write and maintain it at scale with all your domain knowledge, legal infrastructure, etc. This seems true for inventory management, document signing, ecommerce, expensing, crm, training, accounting, etc. Why wouldn't the offerings from services providers get better and cheaper (relatively)?

The stuff you do in-house is probably still going to tied deeply to your internal processes. Admin dashboards, special workflows integrating with different systems, etc.

SimianSci4• 6 months ago

Consider it in the realm of supply and demand. The economics of software will change simply because the tool enables more software to be written. In a way, the barrier of entry into the space of selling software has lowered. It hasnt vanished, but there will be many more entrants and offerings as a result, thus more competition for the existing SaaS companies.

I don't see how the economics of SaaS will remain the same when their value is formed of capital and labor expended, both of which require less now, so please explain how this doesn't lead to an increase in supply and a downward pressure on value?

falloutx9• 6 months ago

Everyone says that but I don't see anyone cooking up the next photoshop and selling it at $3/month. Why are we not seeing more options of every tool? Most Saas companies are sales companies at their core rather than software companies. And those sales people are so good that they can sell a todo list for millions.

coliveira4• 6 months ago

In the case of Photoshop it is the software itself that is becoming useless. In a few years, using photoshop will be viewed the same as developing physical film, a process from a by-gone era that is still possible, but impractical.

walkersnice2• 6 months ago

Everyone says that but I don't see anyone cooking up the next photoshop and selling it at $3/month. Why are we not seeing more options of every tool?

I expect the markets are reflecting that soon there will be more competition.

It'll take time, and as LLMs improve, it'll take even less time.

marcus_holmes3• 6 months ago

I don't see anyone cooking up the next photoshop and selling it at $3/month.

That's not the situation we're talking about though. It's someone saying "hmm, I need to edit this picture. Can I get ChatGPT to do it?" where 3 years ago they would have had to buy Photoshop and learn how to use it.

Similarly, if they need a tool to batch-convert a thousand images, they're getting an LLM to construct the specific tool they need in a couple of hours and then running that, rather than buying a software product that can do it.

You don't need a whole dev team to build a one-off tool for a specific job, which is probably 90% of the demand for those software products. LLMs are becoming the general-purpose tool for a lot of use cases.

CreepGin• 6 months ago

Everyone says that but I don't see anyone cooking up the next photoshop and selling it at $3/month.

Yup, same reason you can't throw manpower at a software project and expect a proportional outcome (Brooks's Law). AI amplifies what's already there; it doesn't conjure taste or product vision out of thin air.

bandrami3• 6 months ago

"Where is the output?" remains the giant elephant in the AI room. You can tell because people get mad when you ask that.

moi23882• 6 months ago

Affinity. GIMP. Just to name two.

mns• 6 months ago

OpenAI releases an electron slog of an app, while they have basically unlimited computing power, compared to anyone else except their direct competitors. Why aren't they just pumping out proper software built by their own AI/Codex...

larodi• 6 months ago

No, they dont distrust AI, they now may start to distrust all the big service providers that are likelty to eventually be eradicated by AI now that everyone can prompt a browser. This perhaps will also finally kill Microsoft Access, which is the closest to AI doing the work instead of you for so long. Then all the do-it-yourself enterprise-grade systems became SAAS, so its right for SalesForce and friends to go fck themselves once in a lifetime for standing in the way of actual software ownership.

I know, you are saying - they will adopt. Perhaps, while also cutting 40% (if not more) personnel during the pivot, and perhaps also by facing more challenges by faster moving competition.

Like, look for a second - why didn't Google create what the perplexity newsfeed is, given they actually like did 10 years ago and then close to nobody was using it. The equilibrium seems super unstable. What happens if a smart kid devices way to compress this information 10x times faster. This immediately means neural chips stall.

This volatility is something, not a joke. The second order effects may be unforseeable in an unparalleled way. Besides, the Luddites organize much better in 2026 given reddit etc.

mempko• 6 months ago

This article crystallizes something I witnessed firsthand last week.

Overheard a guy at a restaurant explaining how he builds phone apps with AI and no coding experience. When asked how he verifies the code works, he said he pastes it into a different AI to explain it.

That's the "slopware" problem in action. The code compiles. It might even work. But there's no understanding of what it's actually doing, no ability to debug when it breaks in production, no awareness of the technical cruft accumulating with every prompt. That's a problem for people creating software for others and is a huge opportunity for software developers to take prototypes and build real stuff.

Does anyone remember the RAD days of the 90s?

On the flip side, for people making software to solve THEIR problems, they don't need to make anything production quality. Its for a single user, themselves! Maybe the LLMs are good enough now that people don't need to buy or subscribe to software that solves trivial problems as they can build their own solutions. Maybe the dream of smalltalk, hypercard, and even early web where anyone can use the computer of what it was meant for is finally here?

christkv2• 6 months ago

Thats fine Ill charge him 500 bucks an hour to fix it if it has success and he runs into not being able to maintain it

elorant• 6 months ago

Because the bubble has began to burst.

raincole• 6 months ago

take a look at 5-year trend

It's just correction.

Noaidi• 6 months ago

But it is not THE correction.

trgn• 6 months ago

the crash is indiscriminate, which is really disheartening. even infra software is getting demolished, no llm is going to replace something like mongodb, but it's all traded under the same umbrella.

christkv2• 6 months ago

The cleanup needed after this by senior developers will be epic.

falloutx9• 6 months ago

Most of the these companies wont survive because of thier stupidity anyway.

h4kunamata2• 6 months ago

Needed??

It already started, freelancer developers are making a lot of money already.

I remember watching a developer having to fix the company entire code because they went full AI and now nobody knows shit anymore. If you are a good senior developer indeed, now is the best time for you to become millionaire.

Company after company can no longer fix things, they are bringing external developers to keep afloat. Remember the tweet popular last year with the AI bot deleting the production database setting the company back to zero???

So....

francisofascii• 6 months ago

The iShares Expanded Tech-Software Sector ETF (IGV) seems to backup what the article is saying. It isolate software firms from the IT industry. It is down about 10% last week, and 20% down the past six months. The IT sector as a whole didn't lose much.

FireBeyond2• 6 months ago

I used to work for ServiceNow.

Market Cap over doubled between 2021 and 2025.

But since the start of 2025, it has lost all of that.

13% in the last week. 20% in the last month. Six months is definitely bleaker than those numbers, 37% down.

agentultra• 6 months ago

... because they've been driven by years of bad leadership, monopolistic scheming, and investor speculation?

AI is just the latest symptom, IMO.

We normalized growth over revenue. Governments around the world have been pressured by Big Tech to dismantle anti-trust and regulation. We glorified shipping slop, suppressing unions, and pretending like programmers were temporarily embarrassed founders.

The stocks are dropping because our system can't sustain these practices, IMO.

dzonga• 6 months ago

investors are panicking.

however those system of record apps - will outlast most "A.I" companies - since the effective data is within their systems

gwbas1c• 6 months ago

I wonder when a "virtual person" will be able to replace carefully-coded business software?

IE, before software automates a business process, it's typically done by hand, by a real person.

What if someone sells a "virtual person" that's capable of doing the job? What if that "virtual person" is harder to train than a real person, but orders of magnitudes easier than writing custom software or custom business rules?

More importantly: What if the "virtual person" can explain the job they do much better than trying to read source code? That's very useful in ~30ish years when the "virtual person" understands the business process better than the people in the company, and someone is trying to update / streamline processes.

paxys• 6 months ago

Is it AI or just the market realizing that some of these companies were ridiculously overvalued to begin with.

Here are the p/e ratios of companies mentioned in the article, after the said "pummeling":

* ServiceNow - 70.66

* SAP - 28.70

* Salesforce - 28.15

* Workday - 73.16

* Microsoft - 26.53

So they range from "a bit high" to "still completely bonkers".

margorczynski• 6 months ago

I would say that MS here is undervalued. They do not offer some small software package for a given business problem but the whole shebang - the OS, mail, calendar, office suite, IAM, cloud, etc. + support for each and the whole integration.

You can't realistically replace that with some LLM solution (in the near-term at least) and they can use the AIs to reduce their costs which is mostly people.

TacticalCoder• 6 months ago

I would say that MS here is undervalued.

Windows 11 though...

roncesvalles2• 6 months ago

Microsoft has consistently proven over the last five years that they have zero ability to execute. It's an astounding failure after failure to do anything right.

alephnerd• 6 months ago

ServiceNow isn't really an "AI" company - they're one of the silent ITSM and Security companies that are nigh impossible to tear out, and are making silent moves into the OT Security space.

And that makes their "AI" pivot much more sustainable imo - their are already such a giant from a cashflow perspective that if some sort of AI valuation shakeup occurs, they have the drypowder to execute on M&A.

SNOW's closest comparables are CROWD and PANW - basically an Arora style platformization play.

tragiclos• 6 months ago

Most of those companies make huge margins by suckering large organizations into outrageous contracts. I don't see how AI moves the needle on this one way or the other.

alexpotato• 6 months ago

So one thing that hasn't changed is that the marginal cost of software is still effectively zero. That's where most of the money was being made b/c if you were a monopoly or oligopoly that each additional unit sold was an absolute increase in revenue and you spread out your fixed costs.

What has changed most dramatically is the "fixed" cost of writing the software to begin with. Given that the costs were being spread out over so many units beforehand, it's not entirely clear to me how that changes a lot of the economics.

For the comments about the "SaaS vs build your own", we can use a home services metaphor. Sure, I can do a lot of what my plumber does. But they do it faster, know all of the issues that go wrong with the work and I can pay them a yearly fee to check my boiler to make sure it doesn't fail etc. The time saved by calling the plumber can then be spent with kids, more work or a combo of the two.

walkersnice2• 6 months ago

I think the idea is that SAP/ServiceNow will be subject to more competition, if/when software is cheaper to write.

Their lead has shrunk, and thus so has their value.

keithnz• 6 months ago

Other than smaller SaaS companies who offer things easily replaceable, I don't think many of the bigger ones can be replaced by AI, if anything, it might make them better. For instance I can't see us replacing our ticket management/support software, hosting, manufacturing/sales/stock software, accounting software, etc but it would be great if we could leverage all those tools better via AI (some are already easy to leverage).

The interesting thing I've noticed is software library authors could take a beating though. Quite a few libs in the .NET world have gone down the monetized paths, for all of the ones I've been using, I've just got AI to remove them and implement native solutions. But none of these are large listed companies.

jbjbjbjb• 6 months ago

There’s only so much investable capital available, if it is going to hardware stocks it’s got to be coming from somewhere else. It’s just a substitution toward hardware tech stocks. Economics 101.

h4kunamata2• 6 months ago

Investors do not understand how coding works.

Google "Project Genie" which allegedly can take your input and the AI will make it rain, drove investors into panic mode. They think that you can create GTA6 like that.

It was the perfect storm: clueless investors + the whole AI bubble already bursting if you are following non-biased news.

AstroBen• 6 months ago

If I were confident it were AI as the cause I'd be seriously tempted to buy right now

Take Adobe for example: they're getting pummeled and there's no way it's due to AI

No-one's building an in-house Photoshop clone to replace them

AI also isn't letting any competitors in. Geez if it were as easy as cloning their product you'd have a mile high mountain of VC money to fund it even pre-AI

Code has never been much of a barrier to entry

bagacrap3• 6 months ago

Do you have a theory what the cause is then? The market moves and pundits write a story to match. There is no telling whether it's right or wrong.

ashrotyne• 6 months ago

The gate opens. The gate closes. It does not "help".

lvl155• 6 months ago

It’s not that AI will replace softwares. It’s that AI will replace people using softwares. Less workers means lower sales. There will be exceptions but a big chunk of B2B space is basically going away.

daxfohl• 6 months ago

Whatever the reason, the result is probably more layoffs.

woodpanel• 6 months ago

Or it could be just the good old cyclical stock market correction after years of entire segments of the indecies growth being purely driven by software.

Of course such an angle would require much more research on behalf of the journalists for much less spotlight than what you would get for free by just singing to the tune of AI-doomerism.

aabajian• 6 months ago

There are many stories on r/ClaudeCode of developers realizing the power of that particular model.

Think of all the solo developer webapp/mobile "hot" startups (FB, Craigslist, Instagram, SnapChat, Pinterest, etc.).

It is no joke that a seasoned developer can build similar apps with Claude in...days. Not just the app, but the entire infrastructure (e.g. scalable on AWS using Terraform). This includes setting up domain registration, Elastic IPs, provisions the instances, setting up keys/ELBs/email server/Twilio/etc.

What is astonishing is how well Claude can plan. You write a spec, and it will give you an entire plan including ASCII UML diagrams, infrastructure changes, database updates, the code itself, user stories, and test cases. It will then do all the work, including "tricky" things like SSHing over a bastion to run the scripts that it wrote on an instance behind a VPC.

The main obstacle now is the context window. If it were to increase 100x or so, Claude could probably manage an entire software company's codebase at scale.

I'm sorry to say, but there's no way you could use Claude for a month or so without feeling, "We are going to need way fewer software engineers."

highfrequency• 6 months ago

Of course, ai will continue to improve. But it is also likely to get more expensive…Microsoft’s share price took a beating last week as investors winced at its enormous spending on the data centres underpinning the technology. Eventually these companies will need to demonstrate a return on all that investment, which is bound to mean higher prices.

That’s not how it works, and I’m surprised this fallacy made it into the Economist.

Commodity producers don’t get to choose the price they charge by wishful thinking and aspirational margins on their sunk costs. Variable cost determines price. If all the cloud companies spend trillions on GPUs, GPU rental price (and model inference cost) will continue going down.

Indeed, cheaper and cheaper AI for the same level of performance has been even more consistent empirically than improvement in frontier model performance.

heresie-dabord• 6 months ago

I’m surprised this fallacy made it into the Economist.

Fallacies in the Economist, you say without irony?

From TFA:

Yet investors risk misdiagnosing the industry’s troubles.

Oh, I think investors are asking, "where is the actual gain in capability and/or productivity?" Because they don't see it. And huge lay-offs don't prove it.

Of course, AI will continue to improve.

This is begging the question. However, for the sake of argument, let's assume that AI continues to improve.

The thing we call AI is a long way from improving robotics. It's most prevalent practical value right now is improved search and code/text information assistance. But these improvements themselves have proven to be far from perfect.

The only monetisable path that we have seen in search and information assistance is advertising. The AI boom walks and quacks like a duck: a bubble, and a dawning generation of new facets of enshittification.

Why software stocks are getting pummelled

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