Not all SaaS has been affected equally
Not all software categories have been affected equally in the ‘SaaSpocalypse’. And the market is voting that way in publicly traded SaaS stocks.
Infrastructure software (e.g. Datadog, Snowflake, MongoDB) is growing most and has been affected the least by the SaaS correction. The biggest drawdowns in this category were Gitlab and Elastic, but with winners like Cloudflare and Fastly that actually expanded their multiples.
Cyber has alse been less affected, despite recent headlines about AI threatening cybersecurity tools. Multiples contracted most for Zscaler and Rapid7, but Crowdstrike and PaloAlto mostly maintained their multiples since Aug’25.
Horizontal software was the weakest category in terms of growth to start with, and also the most affected by the correction. Some of the most affected names have been Atlasian and Monday, with names like Dropbox holding up better.
Vertical software was hit almost as hard as horizontal, which may be surprising in the sense that these companies tend to have strong control of their end-markets (article on why vertical saas is a strong business model) and should be better positioned to react to AI. Some of the strongest hit are:
PAR technologies, a leader in restaurant software which has profitability issues that have compounded with the market correction. Revenue multiple is down 70%
Wisetech, the leader in freight forwarding and logistics software out of Australia, came from having a very large multiple of 34x, which declined to 10x, and the stock is down 68%. They also had internal issues, but they also need to react AI innovators to keep on justifying a strong premium in the future
One of the less affected was Procore, a software used by construction contractors. Their stock had not recovered as much as others post 2022, and they are a more ‘recent’ cloud innovator that is being able to narrate that AI can be a tailwind.
The message of the market seems to be that AI affects vertical software ~20% less than horizontal software (53% vs 43% drawdowns). And that workflow software in general (horizontal and vertical), is ~2x more at risk of AI than infrastructure and cyber software (~50% vs 20% drawdowns).
A week ago I outlined the key reasons why investors are voting that software is worth a lower multiple today vs 6 months ago:
AI can code, enabling new entrants or customers to replicate the product. Companies like Typeform were built upon creating beautiful forms to embed in websites, but now AI can code most of that functionality directly.
AI enables new entrants to build better products reimagined from scratch. In cyber, Claude was recently able to find vulnerabilities that cybersecurity software has missed through decades of scans. In software for freight forwarders, Happyrobot is building a more automated experience that incumbent CargoWise is not tackling yet.
AI can disintermediate the UI layer (the workflow people do in the software). Tools like Claude cowork and Shortcut.ai have shown this to the public over the past months. I encourage you to try tools like Shortcut.ai on excel to get a feel of how an agentic workflow on top of a software feels magic.
In considering the value of a software company, whether it is an incumbent or a startup disruptor, it is worth mapping these AI dynamics to each situation to determine the opportunity or risk of disruption.
I expect to see more startups and incumbents in different verticals building new features to win over the growing AI-automation budgets. Incumbents, specially in defensible vertical software, do have a head start, but the market is voting they will be slow to react. The thing to track will be the actions and plan of the teams to incorporate true agentic workflows. A chatbot that does RAG on data is an example of doing too little. The bar is beating the best version ofclaude cowork for your specific user needs.
The reality is that the market is expanding, and this is an opportunity for everyone to sell better software. Returns will flow to both startups and to incumbents that react and upsell. It’s an exciting time for software!