SaaS stocks tumble 30% as AI agents force industry reinvention

Shares of public SaaS companies including Workday, Salesforce and Adobe have fallen more than 30% from their peaks over the past year as generative AI threatens to make subscription software tools obsolete.

"If two engineers can reproduce your entire product in a matter of a few weeks, then you deserve to be killed," said Sahil Aggarwal, co-founder of Rattle, the software startup now rebranded as Von.

IBM lost $69 billion in market value in a single day in July after a profit warning as customer spending shifted from software to AI hardware. Bending Spoons agreed to acquire workflow software company Airtable for $1.3 billion, well below its last private valuation of $11 billion. Rattle shrank from 70 employees to 15, retaining only a small group to rebuild around an AI-focused product.

"Waiting and seeing is no longer a strategy," said Byron Lichtenstein, chief business officer at Insight Partners, which invested in many SaaS companies and is now trying to save some of them. The firm's co-founder Jeff Horing told staffers in December that if they weren't telling portfolio companies to double their potential revenue opportunities with AI, they weren't thinking big enough.

The pressure stems from a fundamental shift in demand: customers are moving from tools that help people get work done to AI "agents" that do the work for them. This is forcing leaders of venture-backed startups to lay off employees, change business models, relaunch products, or shut down and start over.

Dori Yona, founder of SimpleClosure, which helps startups wind down, said 51% of his venture-backed customers in the first half of the year were software or IT-services companies, up from 44% a year earlier. "If they are not AI-first, they are having a really hard time fundraising right now," Yona said. "It's sometimes easier for a SaaS company to just shut down and just restart."

Jason Lemkin, founder of SaaS organization SaaStr, said the industry has split into companies that embraced AI and are growing, and those that haven't and are struggling. "All the pre-AI guys are gone," he said. "They're just not growing."

Gong and Intercom show AI-first software still grows

Gong, a decade-old sales software company, retrained its workforce and recently surpassed $500 million in annual recurring revenue, growing over 55% year-over-year. Intercom, a 15-year-old customer-service software business, built an AI customer-service agent called Fin that reached $400 million in annual recurring revenue earlier this year. Salesforce agreed in June to acquire Fin for $3.6 billion.

Outreach, valued at $4.4 billion in 2021, has reduced its workforce by about 30%. Its current CEO, Abhijit Mitra, said the company has restructured around AI agents that build revenue operations systems capable of performing tasks autonomously, and that the new business is growing quickly.

Aggarwal's journey illustrates the pivot. After raising nearly $30 million from investors including Insight Partners, Rattle initially tried to integrate AI into its existing product. But by the end of 2024, Aggarwal realized the efforts weren't working. He laid off the sales, marketing and customer-success teams, shrinking the startup from 70 employees to 15. The company rebuilt around an AI "superagent" that can automatically update Salesforce records, track customer information, identify promising sales opportunities and forecast future revenue. The new product, called Von, reached $1 million in annualized recurring revenue in the spring.

The $3.6 billion question for software investors

For investors, the question is which software companies can successfully navigate the transition. Public SaaS names like Workday, Salesforce and Adobe face continued pressure as AI-native competitors and major AI labs like Anthropic and OpenAI threaten to absorb their functionality. Meanwhile, companies that have successfully pivoted — Gong at $500 million ARR growing 55%, Intercom's Fin at $400 million ARR — show that AI-first software can still command premium valuations. The $3.6 billion Salesforce paid for Fin demonstrates the strategic premium placed on AI-native software assets.

This article is for informational purposes only and does not constitute investment advice.