In what Wall Street is calling it the "SaaSpocalypse,” software stocks experienced their sharpest selloff since the 2008 financial crisis.
More than $300 billion was erased from software, data analytics, and financial data companies in just two days last week. The carnage was indiscriminate:
Overall, the S&P North American Software Index fell 15% in January. The iShares software ETF shed nearly $1 trillion in value over a single week, with the damage spreading from the U.S. to European and Asian markets.
Anthropic triggered the massive drop with its launch of new agentic tools for legal and sales workflows. This sent legal software stocks into free fall before the panic spread across the entire SaaS sector.
To understand what's really going on beneath the surface, and whether this is a temporary panic or a permanent reset, I talked it through with SmarterX and Marketing AI Institute founder and CEO Paul Roetzer on Episode 196 of The Artificial Intelligence Show.
Roetzer had a unique vantage point on the selloff. He was in Arizona last week giving a keynote on the state of AI to roughly a hundred SaaS CEOs as the markets were falling in real time. He's also been a longtime SaaS investor, having invested in HubSpot's IPO years ago.
"Is this an overreaction from the market? Most likely," Roetzer says. "But there is uncertainty around the stability of the software company multiples and whether the traditional software players will be the ones to capture the value moving forward."
The key distinction, he says, is that this selloff isn't about current earnings. Most of these companies are hitting their revenue targets. It's about the future, specifically, who will capture the value of human labor over the next three to five years.
"This isn't necessarily a commentary on their current earnings or the current revenue or the projections over the next 12 to 18 months," he says. "This is a debate about where the ‘value capture’ will happen in the next three to five years."
Roetzer traces the vulnerability back to the arrival of ChatGPT. A lot of SaaS companies, he says, had no idea what hit them.
"I know this from firsthand experience because I had conversations with CEOs and the product teams within these software companies that had no idea what was going on when ChatGPT emerged," says Roetzer.
"So the product team struggled to understand that moment, and then they had to scramble to figure out their generative AI roadmaps.”
Since then, those companies have been scrambling to integrate large language AI models into their platforms. But they face multiple obstacles: AI-native startups chipping away at their use cases, the AI labs themselves offering competing products, and the rise of "vibe coding" that lets users build their own alternatives.
All of which raises the question: If you can get the intelligence directly from Claude or ChatGPT, why pay for a SaaS wrapper around it?
The real stakes here go far beyond the $300 to $350 billion annual U.S. software market. Roetzer points to a recent State of Markets report from venture capital firm Andreessen Horowitz that identifies the bigger prize: U.S. white-collar jobs that cost employers about $6 trillion annually.
Software spend will likely grow. But the question investors are asking is who captures that growth: the legacy SaaS players, the AI model companies, or something else entirely?
"The pie keeps getting bigger, but maybe AI natives come along and start taking away chunks of that market share," says Roetzer. "And the AI labs themselves decide that to keep funding their growth, they have to take that stuff on."
This is creating intense pricing pressure. Roetzer shared his own frustration with credit-based AI pricing models in SaaS products, arguing that the abstract, variable costs of tokens and credits are nearly impossible to budget.
He has a simpler solution: Sell an AI agent at a fixed annual cost, say $150,000, that does the work of 10 people. Show the CFO the capability breakdown, the workflow impact, and the projected revenue generation. Revenue per agent, not revenue per employee.
"That is the absolute most logical way to sell AI technology or software in the future," he says.
Business Uncertainty Impact Stocks
A JP Morgan analyst said the SaaS sector is being "sentenced before trial." NVIDIA CEO Jensen Huang called the selloff "the most illogical thing in the world." Multiple analysts compared it to the DeepSeek panic of early 2025, which turned out to be a buying opportunity.
But Roetzer pushed back on the optimistic framing, even from Jensen.
"I disagreed with his take," says Roetzer. "I've never heard Jensen give an answer where I felt like he was caught off guard and didn't have the right words. And I felt like his answer was actually intentionally defensive of a software industry that he knows is ripe to be disrupted."
Venture capitalist Brad Gerstner put a finer point on it during the All-In podcast, noting that Salesforce's free cash flow multiple has been cut in half from 30x to 15x. That means investors who once bet on 30 years of predictable cash flows are now only willing to count on 15.
The stocks aren't falling because revenue is dropping. They're falling because the market is discounting the uncertainty of what AI does to these businesses over the next decade.
The traditional SaaS model was built on a simple bet: Don't worry about profitability for years, just grow. Revenue predictability and high multiples justified this approach.
But what happens when that future growth is no longer certain? When AI-native startups can unbundle your features, when customers can vibe-code their own solutions, and when the AI labs you depend on for intelligence start competing with you directly?
Roetzer doesn't think software companies will disappear. Enterprises still need data management, security, governance, and customer support. The vast majority of companies won't vibe-code a replacement for Salesforce or ServiceNow.
But he believes the era of inflated SaaS multiples might be over.
"I don't know that it's ever going back to the multiples that the SaaS industry was built on for the last 25 years," says Roetzer. "And I think that's the concern of Wall Street: We might have to have a reset of the SaaS market. Companies don't go away, but they never trade at the multiples they traded at before."
Some SaaS companies will figure it out but picking the winners is tough.
"I am not smart enough to bet on which ones those are going to be," says Roetzer.
The deeper tension is one that Wall Street itself can't quite resolve. The market is holding two contradictory beliefs at the same time: that AI is powerful enough to destroy the software industry, but not useful enough to justify the infrastructure investment to build it.
Until that contradiction resolves, expect more volatility. The AI is only getting smarter, more capable, and more threatening to the workflows that SaaS companies have monetized for a quarter century. The question is whether the incumbents can adapt fast enough to capture it or cede the value to someone else.
“It's uncertainty that causes stocks to plummet,’’ Roetzer says.