A bad wave of start-up crashes hits the US software stock industry under the influence of AI

The US software market is experiencing a very challenging start to the year, as developments in artificial intelligence technology are transforming the entire investment landscape. According to market experts, the free fall of traditional software stocks is occurring even as the Nasdaq continues to approach historic highs, creating a notable contradiction between macro performance and the performance of specific companies.

The Clash Between Traditional SaaS and Emerging AI Technology

Last week, SaaS (Software as a Service) companies suffered significant declines. The main factor attributed to this is the launch of Claude—a powerful AI platform offering unprecedented capabilities in data processing and automation. The emergence of Claude marks a turning point, creating a clear performance gap between traditional application companies and those investing in AI infrastructure.

Decoding the Growth Drivers of Software Over the Past Decade

To better understand the current situation, it’s important to review the key factors that have driven the software industry’s rapid growth over the past ten years. First, low interest rates have allowed investors to apply minimal discount rates, thereby maximizing the value of future cash flows—an ideal condition for high-growth software companies. Second, the SaaS model offers attractive profit margins and high customer renewal rates, enabling companies to build long-term growth stories. Third, the cloud transformation wave has opened new growth opportunities for software providers.

Combining these three factors, high-growth SaaS companies with attractive ARR (Annual Recurring Revenue) can be valued at 15 to 30 times, even if they are not yet profitable. This valuation mechanism is very different from traditional industries.

Reshaping the Landscape: Capital Flows Shift to AI Infrastructure

However, the dawn of the AI era has completely reshaped these rules. With powerful AI tools, the marginal cost of many software functions has dropped close to zero, breaking traditional economic models. Investors are witnessing a clear migration of capital from application-layer SaaS applications to more fundamental areas: AI infrastructure, computing power, chip technology, and foundational models.

This trend indicates that, regardless of how much software stock prices may fall or how severe the declines could be, there is little reason to maintain positions in traditional software stocks at this time.