Is SaaS Really Dying? How AI Agents Are Transforming the Software Business

The narrative that software is eating the world — famously articulated by venture capitalist Marc Andreessen in 2011 — helped spark a decade of explosive investment into enterprise software startups. That thesis held true for years: Software‑as‑a‑Service (SaaS) companies scaled rapidly, boasting recurring revenue, predictable growth, and high valuations. But as we enter 2026, a new transformation fueled by artificial intelligence is challenging the very foundations of the SaaS model.

Today, industry leaders, investors, and even stock markets are asking a provocative question: Is SaaS dying as a business category? This isn’t to suggest that software itself will disappear — rather, the business model that made SaaS so attractive may be approaching a structural tipping point as AI agents commoditize core software functionality.

The Changing Investment Landscape

Over the past decade, SaaS dominated venture capital and public markets alike, driven by predictable subscription revenues and scalable global distribution. Countless startups in the enterprise segment — from CRM tools to collaboration platforms — were built around this model. Yet today, stock indices that track SaaS companies are underperforming broader markets. While major U.S. tech stocks — often dubbed the “Magnificent Seven” — drove strong overall gains in 2025, the SaaS index lagged significantly, even sliding into negative territory. Legacy names such as Intuit, Atlassian, and HubSpot, once emblematic of SaaS success, posted weak performance and entered 2026 with double‑digit stock declines.

The pain isn’t abstract. In Israel — a hub for software innovation — leading enterprise software companies like Nice, monday.com, and Wix saw sharp declines in market value throughout 2025 and early 2026. These companies were once among the country’s most prominent high‑tech names on Wall Street, but now none of the pure SaaS pureplays remain in the top‑ten list of Israeli firms by market cap.

AI Agents: The New Software Builders

A major driver of this shift is the increasing capability of AI agents — tools that generate code, automate workflows, and deliver software functionality through natural language commands. Instead of hiring developers or paying for expensive SaaS subscriptions, users can now prompt AI platforms to build tailored tools quickly. One viral example is Anthropic’s “Claude Code,” an AI agent capable of generating working software from plain‑language instructions in minutes. Users have shared stories of creating complete customer relationship management systems over a weekend — tasks that might have required months of engineering effort under traditional development models.

Such capabilities have instilled fear among investors and customers alike that the value once captured by SaaS companies — user interface, features, customer onboarding — can now be replicated instantly and at low cost. Value previously tied to proprietary software may be eroding as AI reduces the need for differentiated interfaces and features that once justified subscription pricing.

Market Multiples and the Hardware Resurgence

As AI rises, software multiples are compressing. At the start of 2025, the median revenue multiple for software stocks was above 7x; by 2026, it had dipped below 5x. Meanwhile, sectors once dismissed by investors — physical hardware companies such as semiconductor firms — began trading at higher multiples. This move reflects a broader shift toward computing infrastructure as a strategic asset in the AI era, where hardware bottlenecks in GPU, power and connectivity are central to performance and innovation.

Nevertheless, the decline in multiples and investor enthusiasm for hardware doesn’t mean that traditional SaaS applications will disappear overnight. Many enterprises — particularly large corporations — have deeply entrenched systems like enterprise resource planning (ERP) or CRM tools that took years and millions of dollars to implement. These mission‑critical systems will not be replaced instantly by AI.

The Future Role of SaaS and AI

Industry veterans warn that while AI can generate a lot of code rapidly, much of that output will require refinement. Early AI‑generated code can be riddled with bugs, inconsistencies, and architectural weaknesses, meaning developers may spend significant time fixing and integrating these tools into enterprise environments. This was a familiar pattern in past technological shifts: vision often races ahead of practical reality.

Furthermore, certain SaaS segments may experience renewed demand because AI‑driven workflows can generate far greater volumes of data and activity. For example, marketers using AI agents might generate more customer leads than before, creating a need for robust CRM software to manage that influx. In this way, traditional software may adapt and integrate with AI ecosystems rather than being fully displaced.

Voices from the Industry

Opinions among investors and founders vary. Dean Shahar, Managing Director at DTCP, argues that the software business category has fundamentally changed. According to him, competitive differentiation through features or user experience is eroding because AI can replicate these quickly and cheaply. Startups must now offer truly unique advantages — such as access to proprietary data or differentiated algorithms — to succeed.

Others, like Lior Handelsman of Grove Ventures, caution against declaring software dead. He notes that while growth may slow and multiples may compress, software will continue to be essential. What changes, he says, is how companies structure value, go‑to‑market strategies, and pricing models. Many enterprises may pivot toward outcome‑based pricing tied to performance results rather than simple subscription fees.

Alon Huri, co‑founder of Next Insurance and now partner at Team8, points out that AI demands organizations rethink internal functions. As AI drives productivity gains, roles and team structures must evolve. The focus shifts from what is delivered to how it is delivered — emphasizing organizational agility and strategic insight.

A Transforming Software Ecosystem

The debate around the death of SaaS reflects larger tectonic shifts in technology markets. AI is both a disruptor and an enabler. It compresses traditional development cycles and democratizes software creation while also creating opportunities for new product categories and business models. Instead of heralding the end of software, we may be witnessing the rebirth of software — one that is more integrated with AI, focused on outcomes, and reshaped around value that AI alone cannot deliver.

In short, the era of hyper‑growth SaaS as we knew it may be fading, but a new era of AI‑augmented software solutions, hybrid business models, and outcome‑driven value propositions is emerging — forcing companies, investors, and entrepreneurs to rethink how software is built, priced, sold, and valued in the 2026 economy and beyond.