This article first appeared in The Edge Malaysia Weekly on February 9, 2026 - February 15, 2026

IF you are befuddled by the mayhem on Wall Street this past week, here is a simple explanation: Investors now believe that artificial intelligence (AI) agents like those being developed by start-ups such as Anthropic and OpenAI are ready to supersede and replace enterprise software made by the likes of behemoth Microsoft Inc and its peers including Oracle Corp, Salesforce Inc, Palantir Technologies Inc, Adobe Inc and ServiceNow Inc. Simply put, the bots are coming for software and they are threatening to upend its business model.

Not surprising, then, that the market’s sell-off in the enterprise software space has been relentless as investors stampede towards the exit. It was the “get me out of the sector” moment for enterprise software. On Feb 3, IGV, the exchange-traded fund (ETF) that tracks the iShares Expanded Tech-Software Sector index, was down a whopping 4.8%. A Goldman Sachs software index was down 6%. Software firms shed nearly US$300 billion (RM1.18 trillion) in market value in one day. The software barometer shed another 1.9% on Feb 4, down 17% over the past week and over 29% since it peaked last October. “We expect volatility to persist in the coming days as investors weigh the impact of potential business model disruptions from AI,” UBS analysts wrote in a Feb 4 note.

If you are a reader of this column, you probably saw all this coming. Last September, just weeks before the software sector index hit its peak, I wrote a piece headlined “AI is eating software, and the world” (Issue 1591, Sept 8, 2025). The headline was a playful dig at prominent Silicon Valley venture capitalist Marc Andreessen’s essay on software-as-a-Service (SaaS), dubbed “Why software is eating the world”, which argued that firms like Adobe, ServiceNow and Intuit Inc are helping businesses digitise workflows using cloud computing, digital signatures and data analytics to improve efficiency and customer service. To be honest, I got some flak for writing that column. A friend from Singapore, in a cryptic email, asked why I was writing a column on the impending death of software just when the IGV software index was hitting new all-time high records. 

The latest move was triggered by Anthropic’s release of new capabilities for its Claude Cowork assistant. It’s a tool that can autonomously build spreadsheets, browse the web, draft reports and organise files. AI start-ups are challenging incumbent enterprise software firms with agentic assistants that can perform tasks in an array of job functions with minimal instruction, operating with relative autonomy on a user’s computer. Anthropic’s new legal tool, for example, can review contracts, legal briefings and perform other industry-specific functions. Claude’s creator also released plug-ins for finance, customer service and other businesses. Its main rival, OpenAI, released a new version of its coding tool called Codex that operates in a way similar to the apps that Anthropic has been building into Claude.

The irony is that until now, software businesses had seen AI as a tool they could use to enhance their own products. Every software firm was talking about “leveraging” AI to stay competitive and move to the next level. Now they regard Anthropic, OpenAI and others as serious competitors. AI players like Anthropic don’t see themselves as upstream players that develop large language models (LLMs) for training, inferences and reasoning. They are offering a full-stack, agentic AI platform that spans from low-level infrastructure to specialised, ready-made enterprise applications.

Anthropic’s release sparked a sell-off in publishing firms that cater to law firms. London Stock Exchange Group plc stock fell 13%, while Thomson Reuters Corp plunged as much as 21%. CS Disco Inc, a litigation technology firm, sank as much as 14% and LegalZoom.com Inc declined 19%. The sell-off then spread to the broader software sector. Shares of Salesforce Inc, ServiceNow, Adobe and Workday Inc fell 7% while Intuit plunged 11%. Software players apart, investment banks such as Goldman Sachs, private credit giant Blue Owl Capital Inc and private equity firm TPG Inc, which have huge exposure to the software sector, were also hit.

Here is why this past week’s sharp plunge in software matters: Software developers went from selling shrink-wrapped software on CDs to selling subscriptions and bundling the software with ongoing services like delivery, upgrading and maintenance over the internet. Instead of a traditional one-time sale, SaaS was built on a recurring-revenue model, with corporate customers paying a recurring fee for each individual user in the company, or “seat”, with access to a software product. For 15 years, SaaS valuations relied on a simple assumption — as customers hired more employees, they purchased more software seats. Revenue scaled with headcount.

Over the past three years, AI improvements have helped accelerate the pace of decline in knowledge workers or total headcount, thereby putting pressure on seats, which in turn reduced revenue for software firms. Now, new AI tools are threatening to supplant many of the better known enterprise software firms. We are now moving towards a world where outcomes scale without adding humans. If an AI agent can perform the work of an entire marketing team or half the human resources team, the software users are no longer focused on the number of licences. The focus has since moved to the results delivered.

Over 110 enterprise software stocks within the IGV soared a whopping 1,030%, or more than 11-fold, between October 2010 and October 2025. During that period, Microsoft’s shares surged 2,000%, Salesforce was up over 1,100% and Oracle shares rose 780%. Service­Now, which uses automated workflows to manage business processes in the information technology (IT), human resource, customer service and security operations of its corporate customers, and only listed on Nasdaq in mid-2012, was up nearly 2,900%. Clearly, a lot of investors made a ton of money betting on software stocks in the last 15 years.

Here’s what differentiates AI’s agentic model from the SaaS model that’s now fading. AI agents or autonomous software programs are mostly built on LLMs that can perform tasks independently by using tools, designing plans and adapting to dynamic environments to achieve specific goals as well as multi-agentic systems. Under the SaaS model, software created value by organising human labour through tools like customer relationship management (CRM) and project management, while under the AI agentic model, software creates value by executing the work itself. As corporate users evaluate return on investment based on outputs rather than seats, per-user pricing of the SaaS model became increasingly harder to justify. So, investors who don’t yet see how AI will generate returns across its own value chain are forced to aggressively sell shares of Salesforce, Adobe, Twilio Inc and others. Revenue that once appeared predictable now carries more long-term uncertainty.

Human staffers have until recently acted as the connective tissue between software applications that companies use. They checked Salesforce for pipeline data, opened NetSuite to review budgets and sent emails to move work forward. Increasingly, AI agents are trying to do all that and more. They can pull data from one system, update another and trigger actions across multiple tools without human intervention. That creates a challenge for traditional systems of record. Companies such as Salesforce, ServiceNow and Workday provide a suite of software that corporate customers use but Salesforce tools cannot easily orchestrate workflows across HR and finance. To better compete with AI agents, rival software firms threatened by Anthropic and OpenAI would either need to merge with each other or collaborate in ways they have not done so far.

AI is accelerating a shift in business models in software and IT services. Analysts say companies will use new tools to address their technology needs, including from OpenAI’s Codex, Anthropic’s Claude Cowork or vibe coding providers such as Lovable, Replit, Bolt and Cursor AI that use AI to write computer code, allowing the developer to focus on the “vibe” or higher-level goals. Lower barriers to entry in coding and creating software will likely generate more competition that, in turn, leads to lower prices that the software firms can charge.

As value shifts upwards, underlying SaaS products risk becoming commoditised storage layers. Microsoft CEO Satya Nadella early last year warned that legacy software could be reduced to basic CRUD (Create, Read, Update, Delete) databases that store information while agents take over the more complex, intelligent layers, capturing user attention and economic value. He argued that the era of relying on standalone, static applications for business processes is ending, to be replaced by AI-driven systems. Nadella also believes the “age of apps is over”. He predicts that AI agents will become the primary orchestrators of workflow, making the traditional user interface-heavy apps obsolete. Instead of users jumping between different tools such as Salesforce, Slack, ERPs or enterprise resource planning to perform CRUD tasks, intelligent agents will handle these actions across various systems seamlessly.

Is Claude driving the marginal cost of software towards zero? Far from it. Yet software firms must be mindful that AI is a real threat for many of them and unless they have scale, they will be disrupted sooner or later. The most exposed software firms are those whose applications provide an interface on top of a database. When an agent can query the data directly, the interface loses its value because Claude Code makes it easier to meet requirements for small tasks. Also vulnerable are smaller and medium-sized firms and younger start-ups without network effects or a large user base. Larger, complex platforms with substantial codebases and deep workflows — such as Microsoft, Oracle, Salesforce, ServiceNow and Intuit, which focuses on accounting and tax software — are insulated. Also safe are Palantir, Snowflake Inc and privately owned Databricks, which is reportedly seeking an initial public offering later this year. Others in the same category are security based software firms like CrowdStrike Holdings Inc and Palo Alto Networks Inc.

For now though, the market may be overlooking the baby that’s being thrown out with the bathwater. In aftermath of OpenAI’s unveiling of its chatbot ChatGPT in late 2022, Microsoft became a close partner and the principal funder of the world’s fastest growing AI start-up, pouring US$13 billion into the firm which at the time was a non-profit AI lab. That catapulted its shares to US$555 last October. They plunged to under US$408 on Feb 3, or down 26% from their peak three months ago. Oracle, whose stock touched an all-time high of US$345 last September when it unveiled its vision to become a hyperscaler alongside big AI LLM builders Microsoft, Amazon and Google, saw its stock plunge over 58% to US$144 this past week.

ServiceNow stock peaked at a split-adjusted US$234 in January last year. It is now down 55% from those highs. Salesforce stock peaked in December 2024 at just over US$365. This past week, they traded at around US$187, or down 49%. Adobe’s stock peaked in August 2021 and is now hovering around 61% below its all-time high. Intuit’s stock is 44% from its peak last June. Atlassian Corp, whose software is used in project management and team collaboration, is down 32% since the start of the year and 79% from its 2021 peak. Shares of Twilio, whose software is used by ride hailing firms like Uber and food delivery giant DoorDash, hit all-time high of US443.49 in early 2021. Within months, its stock had plunged 92% and while it has recovered, it is still down 75% from the peak.

So, what’s next? As they fight off the challenge from AI agents, analysts say software businesses need to demonstrate that they can grow revenues even as headcount at corporate customers remains flat. Software firms need to cut costs to protect their profits as the onslaught from AI agents intensifies. Others will need to embrace AI. That means cannibalising their own revenue with a new business model and lower margins. The widespread sell-off in SaaS stocks, says Derek Hernandez, an analyst for venture capital-focused Pitchbook, “is a fundamental repricing of software, not its death”. SaaS, he notes, was once “perceived as cash-flowing with durable moats, without much question about its sustainability. Those moats now appear vulnerable to AI disruption.”

Assif Shameen is a technology and business writer based in North America 

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