AI Startups Threaten to Disrupt SaaS Giants' Dominance

In 2011, venture capitalist Marc Andreessen famously claimed that "software is eating the world." However, as of 2025, yesterday's disruptors now risk being consumed themselves. The stock valuations of "software as a service" (SaaS) companies may not fully reflect the potential impact of artificial intelligence (AI) on their business models.

SaaS companies, which typically sell cloud-based subscription products to corporate clients, have enjoyed strong growth and investor interest in recent years. However, this trend is now slowing. According to a Breakingviews analysis, the average growth of the constituents of the SEG SaaS Index is expected to drop from over 20% in 2021-2022 to just 9% in 2025, as the pandemic-era boost in corporate software spending proves short-lived.

The emerging threat is AI. Startups armed with large language models can now build cheaper, faster, and more specialized tools, giving customers more choice and potentially delaying their decisions to sign contracts with incumbent SaaS players. This "death of software" scenario, with AI as the disruptive force, is causing concern in the market. Last week, a 30% post-earnings stock drop for the $9 billion project-management tool company Monday.com prompted a broader software selloff that spread to Europe.

Even some of the biggest SaaS names, such as Adobe, may be at risk. Analysts believe that video-production tools from tech giants like Alphabet could compete with Adobe's software, making it harder for the company to defend or grow its market share.

While SaaS incumbents still have advantages, such as the ability to embed AI into their existing systems, this shift also comes with a downside. The new AI wave seems to be prompting a move away from traditional SaaS contracts based on user numbers or "seats," with companies like Salesforce introducing usage-based pricing models. This could usher in a more volatile era for the industry, potentially unsettling investors who have long favored the predictable SaaS contract model.