Over the past few months, something fundamental has shifted in software.
This is not just another multiple compression cycle or macro-driven pullback. It is a structural repricing of what software is worth in an AI-native world.
~$1.3 trillion in value has been erased across public software companies
~$15B+ in annual stock-based compensation continues to be issued into a declining market
Entire categories of SaaS are down 30–50% in months
At the same time, AI-native companies are compounding in the opposite direction, creating one of the sharpest divergences we’ve seen in modern tech.
This is not random. It’s the market repricing the role of software itself.
For the last 15 years, SaaS followed a simple formula:
It worked because software was the interface to getting work done.
When an agent can execute workflows directly, the value shifts away from the interface and toward the outcome.
Many SaaS products were effectively:
CRUD operations on top of a database
Those layers are now compressing.
As one framing puts it, software is moving toward a much thinner stack whereagents + data replace large portions of the middle layer.
Software stocks down ~30%+ on average
Meanwhile AI companies are up ~20%+ in the same window
This divergence matters more than the absolute decline.
Because talent, capital, and attention follow relative performance.
That creates second-order effects:
Unvested equity at software companies has materially declined in value, while AI companies have seen increases.
Software companies lose retention power
AI companies gain hiring leverage
Investors are not just de-risking. They are reallocating.
The narrative has shifted from:
“SaaS is predictable and durable”
“AI may absorb large parts of SaaS functionality”
Private valuations have not fully caught up.
Markups that cannot be realized
Funds sitting on paper gains with no liquidity path
Increasing pressure on secondaries and continuation vehicles
The real shift is not multiples. It’swhere value accrues.
Value sat in the application layer
Distribution was tied to software interfaces
Switching costs were embedded in workflows
Value is moving toward models, data, and distribution
Interfaces are becoming more interchangeable
Workflows are becoming dynamic, not fixed
Software used to be the product. Now software is becoming the byproduct.
But the bar has moved significantly higher.
The companies that will persist tend to have:
Products that are not just UI layers, but deeply embedded into infrastructure, data, or critical workflows.
Systems that improve with usage and cannot be easily replicated by a general-purpose model.
Products that own the customer relationship, not just the feature set.
Not “AI features,” but re-architected products where AI is the core interaction model.
If you are building today, the implications are clear:
You are not competing against incumbents
You are competing against abstraction
This environment is creating both risk and opportunity.
Legacy SaaS portfolios may take longer to return capital
New categories are forming in real time
Early AI-native companies are being built at lower initial cost structures
This is no longer about picking the best SaaS companies.
It is about understandingwhich parts of software still deserve to exist.
The software meltdown is not about fear. It is about clarity.
The market is stripping away what was never truly defensible.
More tightly integrated into real workflows
And in that compression, a new generation of companies will be built.
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