The software industry is navigating a period of intense scrutiny as artificial intelligence raises concerns about future valuations. While some companies like Airtable face significant devaluation, others such as Atlassian and Twilio have recently demonstrated strong performance, offering a glimmer of optimism. The debate continues on how AI will reshape the economics of SaaS, with investors closely watching earnings and market reactions.
The term 'SaaSpocalypse' has been making waves this week, with software stocks experiencing significant volatility. Investors are actively trying to assess which companies are best positioned to navigate the evolving landscape shaped by artificial intelligence.
Airtable, once a prominent cloud software startup, has agreed to an acquisition at a valuation significantly lower than its peak. This event, coupled with sharp declines in HubSpot and Datadog following their earnings reports, has amplified concerns that AI models could diminish the value of established software products.
Matt Hedberg, a software analyst at RBC Capital Markets, noted, "I do think that companies are going to continue to use these coding agents to build functionality to maybe act as a little bit of pressure on renewals."
However, the end of the week brought a reminder of the industry's resilience. Twilio, a provider of cloud-based communications software, and Atlassian, which offers collaboration tools, both saw substantial gains of over 20% on Friday after releasing their quarterly results. Cloudflare, a cybersecurity firm, also experienced a gain of 5.6%.
Aaron Levie, CEO of Box, expressed his admiration for Atlassian's performance, particularly highlighting their most profitable quarter since 2021. Levie commented on X, "Huge Atlassian quarterly beat. There was a misplaced thesis over the past 6 months that somehow agents would be bad for certain software categories. There's definitely truth in this in some areas, but many were parsing this poorly."
This nuanced perspective contrasts with the broader market sentiment. Salesforce CEO Marc Benioff has been actively working to reassure investors that his company's core software offerings remain valuable despite the company's stock performance. Salesforce has seen a significant drop in value despite accelerating revenue growth and consistent margins.
The software sector has been under pressure, not primarily due to current growth rates, but because of the increasing belief that AI tools like OpenAI's Codex and Anthropic's Claude Code could erode their economic models. The iShares Expanded Tech-Software Sector ETF experienced its worst quarter in 2008 during Q1 but has since seen a notable rebound.
'Pencils down' sentiment fades
RBC's Hedberg mentioned that sentiment in the first quarter was so negative that clients were reluctant to even discuss software. "People were pencils down in the space," he said. "They just didn't feel like it was worth their time to meet with software companies back then, and that was even high-quality companies."
This shift in sentiment poses challenges for venture-backed software companies that secured funding at high valuations before the AI boom. The lack of significant SaaS IPOs this year, with a substantial portion of private deal value going to AI companies, underscores these difficulties. PitchBook data indicates that 86% of private deal value in the first half of 2026 went to AI companies.
Concerns were heightened by the news of Airtable's acquisition for less than $1.3 billion, a stark contrast to its peak valuation of nearly $12 billion in 2021. The acquiring firm, Bending Spoons, has a market cap of $28 billion.
Following the Airtable news, HubSpot experienced its worst trading day in a decade, falling 19%. Datadog also dropped 19%, though it has been an outperformer year-to-date. Datadog reported that a major AI client, suspected to be OpenAI, had reduced its usage since June.
Hedberg cautioned, "There's these reminders that we're not out of it. Everything's not smooth sailing."
The market sentiment improved after Thursday's close, buoyed by positive reports from Atlassian, Twilio, and Cloudflare. Atlassian CEO Mike Cannon-Brookes attributed the company's success to his R&D teams' focus on delivering quality, price, and speed. This news came after Atlassian's workforce reduction earlier in the year, aimed at funding AI investments and strengthening its financial profile.
Atlassian's 35% surge on Friday marked its best single-day performance since its IPO. Analysts suggest that part of this rally may be due to short covering, as investors who had bet against the stock bought back shares. Jaluria, an RBC analyst, noted that any positive news for companies perceived to be threatened by AI can trigger a short squeeze.
