“SaaS is dying as a business category”

“SaaS is dying as a business category”

January 25, 2026 discoverhiddenusacom Technology

The AI Earthquake: How Artificial Intelligence is Reshaping the Software Landscape

In 2011, Marc Andreessen famously declared that “Software is Eating the World.” For over a decade, that statement felt undeniably true. Now, a new tremor is shaking the foundations of the tech industry: Artificial Intelligence is eating software. This isn’t simply a shift in technology; it’s a fundamental restructuring of how value is created, and it’s already impacting stock prices, investment strategies, and the future of work.

From SaaS Boom to AI Disruption

The early 2020s saw a frenzy of investment in Software-as-a-Service (SaaS) companies, fueled by the promise of recurring revenue and scalable growth. However, 2025 signaled a turning point. While the broader stock market thrived, the SaaS index lagged significantly, falling 6.5% against the S&P 500’s 17.6% rise. This trend has accelerated into 2026, with companies like Intuit, Atlassian, and HubSpot experiencing sustained weakness. The market isn’t just nervous; it’s anticipating a profound change.

Israel’s tech sector, a global hub for software innovation, is feeling the impact acutely. Leading companies like Nice, monday.com, and Wix have seen substantial market value declines. The dominance of software firms in the top ranks of Israeli companies traded on Wall Street has been replaced by chip manufacturers, reflecting a broader shift towards hardware as a more secure investment.

The Rise of “Vibe Coding” and AI Agents

The catalyst for this disruption is the rapid advancement of AI-powered coding solutions. “Vibe coding,” or programming through natural language, is lowering the barrier to entry for software development. Platforms like Base44, founded by Maor Shlomo, allow non-programmers to build applications with simple verbal commands. But the real game-changer is the emergence of sophisticated AI agents like Anthropic’s Claude Code.

Claude Code promises to automate complex programming tasks in minutes, tasks that previously required significant time and expertise. Reports are emerging of companies cancelling expensive contracts with established software vendors to build custom solutions using these AI tools. One example circulating widely describes a former Amazon executive building a complete CRM system over a single weekend – a feat that would have previously required a dedicated team and months of development.

Did you know? The median revenue multiple for software firms has dropped from above 7 at the beginning of 2025 to below 5 today, signaling a significant re-evaluation of their value.

Hardware’s Resurgence and the Changing Investment Landscape

This shift isn’t just about software; it’s about the entire tech stack. Investors, once enamored with the fast growth and low capital requirements of SaaS, are now turning their attention to hardware. The physical constraints of AI – the need for powerful GPUs, efficient cooling systems, and robust data infrastructure – are creating new opportunities for companies specializing in these areas.

As Dean Shahar, managing director at DTCP, puts it, “The SaaS world is dying, not software itself, but SaaS as a business category. AI has turned software into a commodity where sustainable competitive advantage is nearly impossible.”

What Does This Mean for the Future of Software?

While the “death of SaaS” may be hyperbolic, the industry is undoubtedly facing a period of significant upheaval. The traditional model of selling subscription-based software is being challenged by AI-powered alternatives that offer greater flexibility and lower costs. However, established software solutions aren’t going to disappear overnight.

“Sticky” software, like Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems, represents a significant investment for organizations and won’t be easily replaced. Moreover, the initial wave of AI-generated code is likely to require extensive debugging and refinement in the coming years, creating new opportunities for skilled developers.

Implications for Israeli High-Tech

Israel’s tech ecosystem, built on a foundation of enterprise software innovation, faces a particularly challenging transition. The SaaS model was a perfect fit for Israel’s strengths – online distribution, minimal training, and global reach. But as the market shifts, those advantages are diminishing.

Lior Handelsman, managing partner at Grove Ventures, notes, “SaaS isn’t dead, but it faces real challenges in sustaining growth… You still need deep coding expertise, but barriers to entry are falling fast.” The focus is shifting towards companies with uniquely inaccessible data or truly differentiated algorithms.

Pro Tip: For Israeli startups, focusing on deep tech and hardware – areas where Israel has a historical advantage – may be a more promising path forward than competing in the crowded SaaS market.

Adapting to the New Reality

The future of software lies in integration with AI. Companies that can leverage AI to enhance their existing products and services will be best positioned to succeed. Nice, monday.com, and Wix are already taking steps in this direction, acquiring AI startups and integrating AI features into their platforms.

Alon Huri, co-founder of Next Insurance, believes that the focus should shift from *what* you give the customer to *how* you deliver it. “CEOs of companies… must rethink organizational structures from the ground up, what functions are still necessary, and which are not.”

Looking Ahead

The AI revolution is still in its early stages. While the immediate impact on software stocks has been negative, the long-term outlook is more nuanced. Mature software companies may evolve into slower-growing, dividend-paying businesses. New startups will need to focus on building AI-powered solutions that address specific, unmet needs. And the entire tech industry will need to adapt to a world where artificial intelligence is not just a tool, but a fundamental force of change.

Frequently Asked Questions (FAQ)

  • Is SaaS really dying? Not entirely, but its rapid growth is slowing down as AI-powered alternatives emerge.
  • What is “vibe coding”? Programming using natural language instead of traditional coding languages.
  • Will AI replace programmers? AI will automate some programming tasks, but skilled developers will still be needed to debug, refine, and maintain AI-generated code.
  • What should investors focus on now? Hardware, deep tech, and companies that can successfully integrate AI into their existing products and services.

What are your thoughts on the future of software? Share your insights in the comments below!

Explore more articles on AI and the Future of Work and Investment Strategies in a Changing Tech Landscape.

Subscribe to our newsletter for the latest insights and analysis on the tech industry.