Salesforce, Adobe, and ServiceNow have lost over 30% of their value since 2025

Major technology firms that once dominated investor portfolios are watching their market value crumble as the rise of artificial intelligence tools threatens to reshape how businesses operate.

Big names in the software industry have taken a beating on stock markets recently. Salesforce, Adobe, and ServiceNow have each lost more than 30% of their value since early last year. An index tracking smaller software businesses has dropped over 20% during the same stretch.

The decline picked up speed this month. That happened after Anthropic launched Claude Code, an AI program that experts say can drastically cut down the time needed to create complicated software programs. The technology has sparked concerns about something called “vibe coding,” where AI systems rapidly generate applications and websites.

“The narrative has really shifted,” said Rishi Jaluria, who analyzes software companies for RBC Capital Markets.

Market sentiment has swung dramatically, according to Jaluria. Initially, investors believed software firms would gain from AI developments. Now they’re asking a different question: “Is AI just the death of software?”

The coming days will offer more clues about technology’s broader health. Apple, Meta Platforms, and Microsoft are scheduled to release earnings reports. The Federal Reserve also has a meeting planned, though no changes to interest rates are anticipated.

The reversal marks a stunning turnabout for an industry that dominated Wall Street attention just a few years back.

The software boom that was

Throughout the 2010s, software appeared to fulfill Marc Andreessen’s prediction that it would “eat the world.” Fast internet connections and cloud computing powered the expansion. Companies could rent storage from providers like Amazon.com instead of maintaining their own data centers.New software ventures sprouted up everywhere

They tackled everything from yoga studio scheduling and payment processing to corporate cybersecurity defense.

Wall Street’s view of the sector transformed completely. Once considered risky, software earned a reputation for dependability. Companies rarely switched products after integrating them into their operations. Long-term subscription deals brought predictable income streams. Investors valued that highly.

Stock prices climbed sharply. The sector attracted floods of borrowed money as private equity firms rushed to buy companies. Remote work requirements during the pandemic sent the boom into overdrive. Falling interest rates made borrowing cheaper, which added fuel.

Things started changing when rates climbed in 2022, and workers returned to offices.

Lenders who had funded software acquisitions began seeing cracks. Competition intensified. Companies carrying heavy debt loads started struggling.

Software loan defaults were virtually unknown before 2020. That was partly because lending to such companies was relatively new. Over the past two years, however, 13 software businesses have failed to meet their debt obligations, according to PitchBook LCD. That includes both bankruptcies and out-of-court debt restructurings.

Quest exemplifies the challenges. The company makes OneLogin software for employee authentication. Clearlake Capital purchased Quest in early 2022 using $3.6 billion in investor loans. Despite benefiting from remote work trends, Quest buckled under its debt burden while facing competition from Okta, a larger rival. The company reached a restructuring agreement with lenders last June.

Growing investor caution

Default rates for software loans remain below those for buyout loans overall. Investors haven’t fled entirely. But the premium that investors demand for holding software loans above benchmark rates has climbed over the past 15 months. That’s happened even as overall loan premiums edged downward, according to PitchBook LCD data seen by WSJ.

“The investor base is definitely scrutinizing these software names much more closely,” said Vince Flanagan, who manages portfolios at Seix Investment Advisors.

AI’s emergence has deepened the caution. The main dangers include fresh competition from newcomers and companies building their own software instead of paying outside vendors.

Most analysts don’t expect software companies to vanish soon. The more immediate worry is slower revenue growth, Jaluria explained. Customers are testing alternatives rather than buying typical upgrades and extras.

Jaluria believes AI could hurt “fat, lazy incumbents” while helping innovative companies that use AI to enhance their offerings.

Questions about AI’s future add to the uncertainty

AI enthusiasm has pushed stocks to records recently. But investors have become pickier about which AI-related companies to back.

Firms are borrowing heavily for AI infrastructure projects. Lenders are proceeding carefully. They’re demanding higher interest payments from big spenders like Meta and Oracle relative to their credit quality.

Investors are asking hard questions, he added. “Are these investments sustainable? Are they going to be profitable? Are there going to be cash flows, or will there not be?”

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