The Great Software Repricing: A Framework
A framework for thinking about the SaaS business model transition
Software companies are getting crushed. Can old dogs learn new tricks?
Software stocks have been underperforming broad indices (QQQ, SPY) and semis (SMH) since 2023 (guess what happened on November 2022). And recently, the selloff accelerated to start off 2026.
Many attribute the underperformance to seat compression worries, high interest rates, disappointing growth guidance, etc. And of course, Wall Street finally got to try Claude Code (usually they’re months behind, but AI gets too much attention now for prices to lag). It seems like this was their “oh fuck” moment.
But what confuses people is that software companies - at least on a spreadsheet - look “ok”.
Almost every software company expanded their revenue in 2025, and even # of seats have remained steady on a net basis.
Mass AI job losses haven’t materialized yet. Macro is running on the hotter side, with inflation rolling over, etc.
More importantly, every SaaS company C-suite finally woke up from their 2021 hangover. They know they need to transition their revenue mix to “AI agent revenue”, and are executing quickly. Vibe coding is making incumbents faster than ever.
Thus, the situation is fluid, and the tea leaves can be hard to read.
Zooming out, however, the picture is simple. People are really overcomplicating what’s going on with software. In fact, there’s really only one thing to pay attention to.
Two and a half years ago, I wrote two bearish pieces on software, and a lot of that has played out through multiple compression. The trades turned out to be home runs. This post is the sequel, focusing on what’s to come. In my 33 predictions for 2026, I called Adobe a value trap (I was right). But am I bearish on all software? When will software turn around?
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