AI’s Challenge to Software

A challenging week for the markets. The S&P/Nasdaq were down 2%/4% as of Thursday’s close as concerns around software’s vulnerability to AI and continued high AI-related capex at Google and Amazon weighed on the broader market. Software stocks weren’t the only ones who had a difficult week. Bitcoin slumped to below $65,000 (a level not seen since over a year ago), and silver reversed a slight midweek recovery to finish around $70/oz, similar to where it was after last week’s 35% rout. Year-to-date, the S&P/Nasdaq are down 1%/3%. Our NPM Private Market Tracker*, which shows the average price performance of the 50 largest names in our internal Tape D® data, is up 3.5% YTD

SAASPOCALYPSE

If “frost quake” was the new term to learn in January, the first week of February brought what some in the market have coined “Saaspocalypse” (Bloomberg). Concerns that AI technology could make many software applications obsolete wiped 10%+ of value from key names such as Snowflake (down 18% on the week), Monday (down 16%), Intuit (down 13%), Salesforce (down 11%), Workday (down 12%), AppLovin (down 21%), Thomson Reuters (down 19%) and LegalZoom (down 20%) (Wall Street Journal). Year-to-date losses in many of these names are in the 20-30% range. Financial companies with exposure to software-related debt also felt pressure; for example, private credit firm Blue Owl was down 17% this week.

Could AI cannibalize software? Software stocks had been challenged before this week’s sell-off (Salesforce and ServiceNow are two names that stand out), but the release by Anthropic and OpenAI of new tools that write software to perform legal, finance and customer service functions created fear around the future business model for software (Wall Street Journal). If employees can vibe code applications themselves, do companies need to spend significant dollars on software platforms? The bull case on software is that that large software companies do more than just provide a platform: They deeply integrate into processes, help companies manage and analyze their data, standardize workflows, and implement automation and controls. It may therefore be difficult for new apps to unseat large, enterprise-wide systems that are entrenched and whose interfaces users are familiar with. Also, while it is clearly a breakthrough for individuals with no experience to be able to code their own usable software from scratch, we are likely still a long way from large corporates deciding to run their CRM systems off of a program that was vibe-coded in a basement. The bear case is that we are still in the early stages of AI functionality – in terms of both what AI is capable of and what people know how to guide AI to do. If AI capabilities continue to advance, it might be much easier for companies to let go of some (expensive) software platforms.

Exposure in private credit. Software pain has spread to the debt markets. Software was a hugely popular sector for LBOs over the last decade because revenues were seen as sticky (software is embedded into the business), margins are high and cash flows are recurring owing to subscriptions (Bloomberg). This has resulted in software representing an outsized portion of leveraged loans (about 13%, more than double the share of the next largest sector) and the private credit market (around 20%) (Wall Street Journal). If the moats that made the software business attractive are at risk, cash flows and valuations might be as well, creating risks for lenders to highly-levered names.

Un-levered private software companies might weather a “Saaspocalypse”. The ten largest enterprise software names that we track in our Tape D® data are Databricks, Canva, Cursor, Deel, Rippling, Clickhouse, Veeam, Airtable and Notion. However, not all of these companies will necessarily be victims of the disruption of traditional software. In fact, many of them leverage AI to improve data management and corporate processes. For example, Databricks sells a data + AI platform that companies may need in order to manage their in-house models (Forbes). Canva already integrates AI into its studio (company reports), though the proliferation of access to LLMs could create some competitors. It therefore may not be a given that the software-related pressure we have seen in public shares and private credit markets spills over to the enterprise software names in our universe.

BIGGEST MOVERS AND TOPICAL NAMES:

Based on our proprietary Tape D® data, the best performers of the large cap names in the private market thus far in 2026 have been:

Cerebras Systems, with a +52% estimated share price performance

Replit, +26%

OpenEvidence, +15%

Clickhouse, +13%

RECENT EVENTS

• SpaceX and xAI merged, with the new company reportedly valued at $1.25 trillion (Pitchbook, 2/4).
• Oracle announced that it would raise up to $50 billion of capital this year through a combination of debt and equity. On Monday, it issued $25 billion of senior unsecured notes across eight tranches with maturities ranging from 2029-2066 (Bloomberg, 2/2).
• Alphabet will double capex to ~$175-185 billion amid its data center buildout (The Information, 2/5). Amazon expects to spend $200 billion of capex in 2026, up 60% year-over-year, and shares were down 10% after earnings (Wall Street Journal, 2/5).
• Anthropic is planning an employee tender offer at a $350 billion valuation (Bloomberg, 2/3).
• Nvidia is nearing a $20 billion investment in OpenAI (Bloomberg, 2/3).

NOTABLE CAPITAL RAISES

• Waymo raised $16 billion at a $126 billion valuation (The Information, 2/3).
• ElevenLabs, an AI audio startup, raised a $500 million Series D at an $11 billion valuation (Axios, 2/5).
• Cerebras, an AI chipmaker raised a $1 billion Series H at a $23 billion valuation. Cerebras also filed for an IPO last fall. (Pitchbook, 2/5).
• Skyryse, a developer of aviation automation systems for flight safety, raised over $300 million in a Series C at a $1.15 billion valuation (Axios, 2/4).
• Bedrock Robotics, which automates construction equipment, raised a $270 million Series B at a $1.75 billion valuation (StrictlyVC, 2/4).
• CesiumAstro, a space and defense startup, raised $470 million (Pitchbook, 2/3).
• Overland AI, a developer of military land robots, raised $100 million (StrictlyVC, 2/3).

NOTABLE EXITS

• York Space Systems priced its IPO.
• Forgent Power Solutions, which makes electrical distribution equipment for data centers and industrial facilities, raised $1.5 billion in its IPO (Axios, 2/5).
• Veradermics, which is developing an oral treatment for pattern hair loss, raised $256 million in an IPO (Crunchbase, 2/4).
• CapitalOne announced that it would acquire Brex, a corporate credit card startup, for $5.15 billion (The Information, 1/22).