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Software stocks have declined sharply amid concerns that AI could enable businesses to build internal capabilities and reduce reliance on enterprise software, though this view ignores the deep trust, security, and organizational entrenchment that protect established software companies’ competitive positions.

What caught our eyes this week

Is the SaaS-pocalypse upon us?

Software stocks have been lagging the market for the past six months, and they went into free fall last week after Anthropic released new features aimed at corporate business functions. A developing bear case sees a future where AI helps businesses build new capabilities internally, which would degrade the business models of the enterprise software companies that currently assist with those functions. On the other side is the bull case, where AI integrations—paired with proprietary data—make applications even more productive and further entrenched in the corporate ecosystem. While we believe in AI’s ability to improve corporate profitability, we are skeptical it will come from allowing businesses to cancel subscriptions for software that have been deeply embedded in their organization for years, if not decades. The “moat” of these companies isn’t just about code. It’s about security and reliability that have been built and maintained over the course of years. The real moat is, in a word, trust. Will there be winners and losers? Of course, as there always are. But the indiscriminate selling of anything software-related (including private capital stocks that invest in software companies) doesn’t feel very rational.

Graph showing the S&P 500 software industry and the perfect off the high mark. In February 2026, this is -30%.

CHART OF THE WEEK: YCharts, Cerity Partners, 2/6/2026.

Past performance does not guarantee future results.

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