Software Hurting From AI

Software is starting to hurt, and the results are not pretty.

Many industries have been damaged by AI and many have been non-tech industries.

Examples are found everywhere.

Now, try to process the fact that AI is starting to gut the software as a subscription business.

This is not just a warning sign – this is happening in real time.

Let me give you a few examples.

Stocks like Adobe (ADBE) and Salesforce (CRM) have plummeted, reflecting broader investor skepticism about the industry’s ability to adapt to rapid technological shifts, particularly the rise of artificial intelligence (AI).

Other examples include Intuit (INTU), ServiceNow (NOW), and Autodesk (ADSK).

In contrast, some outliers like Microsoft (MSFT) and Oracle (ORCL) have bucked the trend with modest gains.

To understand this downturn, it’s essential to dissect the macroeconomic and sector-specific factors at play. The software industry thrived in the post-pandemic era on the back of digital transformation, cloud adoption, and remote work tools.

However, by 2025, growth began to decelerate as enterprises tightened budgets amid persistent inflation and higher interest rates.

This environment squeezed margins, especially for software-as-a-service (SaaS) companies like Salesforce and Adobe, whose subscription-based models depend on consistent customer spending. 

The launch of advanced AI tools, such as Anthropic’s Claude in late 2025, reignited fears that generative AI could cannibalize traditional software demand.

For Adobe, a leader in creative software like Photoshop and Illustrator, AI-powered image and video generation tools from competitors like OpenAI’s DALL-E and Midjourney have democratized content creation.

Users can now generate professional-grade assets without needing Adobe’s full suite, eroding its moat.

Salesforce, focused on customer relationship management (CRM) software, faces analogous pressures.

AI agents are eroding seat-based pricing models, where companies charge per user. If AI handles routine tasks, fewer human seats are needed, suppressing demand.

ServiceNow, which provides IT service management platforms, has suffered even more, down over 42% in the past year, as enterprises question the value of layered subscriptions when AI can streamline workflows independently.

Many firms, including Adobe and Salesforce, invested heavily in AI R&D—but returns have been elusive.

Microsoft and Oracle have fared better by leveraging cloud infrastructure (Azure and OCI) to power AI workloads, positioning them as enablers rather than targets of disruption.

Their gains highlight a bifurcation: hyperscalers thrive, while pure-play SaaS firms struggle.

AI commoditizes routine coding, shifting focus to creativity and effectiveness, which could increase demand for differentiated software.

That said, competition is intensifying as more AI companies are building custom chips in 2026, potentially bypassing traditional software stacks.

Startups wrapping AI models could disrupt incumbents, as Medium warns 99% of AI startups may fail by 2026 due to overreliance on non-proprietary tech.

For software giants, this means adapting or risking obsolescence. AT&T forecasts AI-fueled coding will shorten development cycles to minutes, redefining methodologies.

The growth of AI and the applications to it, and what it means in the software world, has put a scare into these stocks.

I would avoid them for the meantime, especially the ones mentioned in this newsletter.

Yes, they are cheaper, but their competitive moat is in the process of getting destroyed, and that is not where you want to put your hard-earned cash.

Chips companies and AI data center stocks will outperform software stocks for the foreseeable future.

Move the capital to safer and higher grounds.