AI Shakeup: Enterprise Software Stocks Plummet

Recent product releases from Anthropic PBC have led to a dramatic selloff in enterprise software stocks, impacting companies such as Salesforce and Workday. This market downturn highlights a critical distinction between AI capabilities and the core offerings of these software providers.

While artificial intelligence is increasingly adept at higher-level knowledge work, it currently lacks the ability to replicate the underlying systems of record that manage sensitive corporate data, including billing and compliance. These foundational offerings are considered strengths for established firms.

Executives from SAP and Salesforce argue that generative AI models cannot adequately process the critical business data and workflows essential to their operations. Many successful SaaS products were built by identifying unique organizational problems and coding solutions into software, creating complex workflows that serve as critical infrastructure.

However, the application layer built on top of this infrastructure has often been criticized for being clunky and overpriced. Customers have frequently been locked into these systems due to the high cost and complexity of switching providers.

Companies like Klarna have begun replacing traditional SaaS vendors with newer tools and AI coding assistants to build more modern application layers. This trend suggests a shift where AI is used to create custom applications, potentially squeezing out expensive interface layers while preserving underlying data.

Salesforce is positioned at a critical juncture, balancing its role as a system of record with its function as a knowledge interface increasingly challenged by AI. Previous attempts to integrate AI, such as Salesforce's Agentforce, have shown mixed results.

Ultimately, the market correction is seen as necessary for outdated applications. If AI technologies can integrate with existing systems of record, they may diminish the pricing power of SaaS companies, signaling the end of easy margins for the enterprise software's application layer.