The share prices of Adobe, Salesforce, ServiceNow, Microsoft, Monday .com, Workday, Intuit and other 'CRM/SaaS stocks have been getting clobbered over the past year, and even as far back as 2024, presumably over fears of AI encroaching on their business models.
Post-COVID, as small businesses and individuals were shutting down or sheltering in place, these companies rode a wave of selling premium, highly-profitable subscriptions to businesses to automate various processes (e.g. payrolls, scheduling, ad platforms, taxes) in an era of reduced workforce and WFH.
Fast-forward to 2025-2026 and now generative AI is in full swing. Anthropic, Cursor, Google, and OpenAI have offerings that can create entire programs with mere prompts, in what has been called 'vibe coding'. You can just whip up a program in a day with the help of these AI tools.
Suddenly, businesses don't need to pay these SaaS companies for pricey subscriptions. This has resulted in very low valuations of the aforenoted companies, as share price have fallen in excess of earnings declines, suggesting the market is pricing in the very real possibility that AI encroaches on the turf of these SaaS businesses.
Why pay a small fortune for a Photoshop license, or hundred of thousands of dollars for enterprise SAA payroll/tax software, when you can just vibe code a bespoke payroll program, or use a premium AI subscription to render or edit images and videos?
This may already be happening. It's too soon to tell how many companies and individuals have defected to cheaper AI alternatives, but it will be interesting to see what happens. Is this threat overblown? I think Microsoft will fare much better than the others--good luck vibe coding a Windows alternative, and its business is otherwise well diversified. But time will tell.