Podcast Summary: The Rundown – Deep Dive: The Software Selloff Explained

Date: February 14, 2026
Host: Zaid Admani (Created by Public.com)
Episode Theme:
Exploring the recent sharp decline in software (SaaS) stocks, the reasons behind the sell-off, the threat of AI to traditional business models, and whether the market reaction is rational or overblown.

Episode Overview

Zaid Admani discusses the “SaaS-pocalypse”—the severe underperformance and sell-off of software companies in 2026. He explains the historical appeal of the SaaS business model, how AI is threatening the sector’s fundamentals, the catalyst for the market’s fear, and perspectives from industry leaders on whether this is an overreaction or a justified repricing.

Main Discussion Points & Insights

1. SaaS: The “Perfect” Business Model (00:00–03:00)

Origins and Growth:
- Reference to Marc Andreessen’s 2011 prediction, “Software is Eating the World.”
- Software’s ubiquity: from CRM and payroll to niche sector tools (dental offices, construction, hospitals).
- Quote:
  
  “Software really has eaten the world. Like how many times have you guys had a piece of software go down at work and it prevents you from doing your job?” – Zaid Admani (01:05)
Why Investors Loved SaaS:
- Subscription (recurring revenue) model; predictable cash flow.
- High customer “stickiness” due to difficulty in switching.
- Extremely high margins—once software is built, additional customers are almost all profit.
- Reference: Ben Thompson’s term “zero marginal cost.”
- Pandemic and low rates led to 2021 valuation peak (S&P Software Index forward PE of 50 vs S&P 500 at 22).

2. 2026 Selloff: What Happened? (03:00–05:00)

Sharp Valuation Decline:
- S&P North American Expanded Technology Software Index’s forward PE drops below 20 for the first time.
- ETF IGV (100+ software firms): Down 20% YTD.
- Giants like Salesforce, Workday, ServiceNow, Intuit: Down over 30% in six weeks.
- Quote:
  
  “…one of the worst sector crashes in modern market history.” – Zaid Admani (04:00)

3. AI as the Catalyst for the Panic (05:00–08:00)

Triggers and Fears:
- Release of Anthropic’s AI plugins (automating business tasks like contract review, compliance, finance research) caused panic.
- Concern: If AI agents can replace specialized software, demand for SaaS could plummet.
Deeper Threats to SaaS:
- AI reduces need for human workers = fewer SaaS seats/subscribers.
- Companies could use AI tools (like Lovable and Replit) to create custom internal software, bypassing traditional SaaS altogether.
- Counterpoint: Zaid believes these custom coding fears are “completely overblown.”
Emergence of AI-Native Competition:
- AI enables “nimbler” startups to build quickly and cheaply.
- Incumbents may have to lower prices—hurting margins and growth.

4. Is the Panic Justified or Overblown? (08:00–09:00)

Industry Voices Urge Caution on the Panic:
- Jensen Huang (Nvidia CEO):
  
  “There’s this notion that the tool in the software industry is in decline and will be replaced by AI. It is the most illogical thing in the world. And time will prove itself…” (06:35)
- Ben Thompson (Stratechery): Existing software companies will use AI for faster development, not be replaced by it.
Wall Street’s Take:
- JP Morgan & Goldman Sachs say selloff is overblown.
- Recent earnings (Q4 2025) have remained strong—analysts predict 16.8% earnings growth for 2026.
Historical Parallel:
- Panic over Google Search being wiped out by ChatGPT “never happened”—Google search is still growing double digits.
- Zaid: “I think we're experiencing the same fear right now when it comes to software companies.” (08:30)

5. Why Most Firms Won’t “Vibe-code” Their Own Software (09:00–10:00)

Enterprise Realities:
- Businesses need reliability, security, compliance, and support—not feasible with DIY AI software.
- Upkeep of code, integration, and legal compliance are too complex for most companies.
- Quote:
  
  “…if you’re a dental office, vibe-coding a custom patient tracking software that’s compliant with all laws seems like a massive headache and a waste of time.” – Zaid Admani (09:50)
Evidence: Even leading AI labs (OpenAI, Anthropic) continue using traditional SaaS (Slack, Salesforce, Workday).

6. Zaid's Take: A Healthy Repricing and a Buying Opportunity (10:00–10:41)

Not the End—But a New Normal:
- AI throws uncertainty into established software models—expect heightened competition, lower prices/margins, fewer big winners.
- High-flying SaaS stocks were due for a valuation correction.
- Firms with “real moats and deep integration” will survive; key is identifying them.
- Quote:
  
  “If you can identify the winners now, this sell off presents a fantastic dip buying opportunity.” – Zaid Admani (10:35)

Notable Quotes & Moments

| Timestamp | Speaker | Quote | |-----------|----------------|---------------------------------------------------------------------------------| | 01:05 | Zaid Admani | "Software really has eaten the world...how many times have you...had a piece of software go down at work and it prevents you from doing your job?" | | 04:00 | Zaid Admani | "...one of the worst sector crashes in modern market history." | | 06:35 | Jensen Huang | "There's this notion that the tool in the software industry is in decline and will be replaced by AI. It is the most illogical thing in the world." | | 09:50 | Zaid Admani | "...if you’re a dental office, vibe-coding a custom patient tracking software that’s compliant with all laws seems like a massive headache and a waste of time." | | 10:35 | Zaid Admani | "If you can identify the winners now, this sell off presents a fantastic dip buying opportunity." |

Key Segment Timestamps

00:00 – SaaS business models: why investors loved them
03:00 – Valuation history and 2026 crash timeline
05:00 – The impact of Anthropic’s AI plugin on sector sentiment
06:35 – Jensen Huang’s rebuke of the “AI replaces SaaS” narrative
07:30 – Wall Street and industry analysis on whether the panic is exaggerated
09:00 – Why most companies won’t build their own AI-based tools
10:00 – Zaid’s outlook: opportunities, risks, and the path forward

Conclusion

Admani concludes that while AI introduces real uncertainty and will pressure legacy SaaS models, the current sell-off appears exaggerated. Legacy software companies are unlikely to be replaced wholesale; rather, there will be a shakeout with a handful of strong winners. For savvy investors able to pick those winners, current prices could represent a compelling dip-buying opportunity.

Transcript

A (0:00)

Welcome back to the Rundown for another weekend deep dive. Today we are talking about the SaaS pocalypse. If you've looked at your portfolio lately, you might have noticed that your favorite software stocks are getting absolutely crushed right now. In a blink of an eye, software companies went from Wall Street's favorite investment to being one of the worst performing sectors in the market right now. And it's all because of AI. So in today's episode, we'll tell you why software companies and their business models had investors jumping in over the last few years, why that model is now being threatened by AI. And if this sell off is a massive overreaction or the beginning of the end, we got a great one for you today. Let's dive in. Now, before we get into the numbers, let's talk about software companies, their business models, and how they became one of Wall Street's favorite investments over the last decade. We probably need to go back all the way to 2011. There was a famous op ed in the Wall Street Journal from venture capitalist Mark Andreessen. The title of that op ed was why Software Is E World. And in that op ed, he predicted that software was going to disrupt every industry imaginable. And honestly, he was right. You Fast forward to 2026 and we have thousands of software companies for all types of problems today. Businesses all over the world rely on software to handle very important things like customer relationship management to payroll, down to very mundane things like booking a conference room. And some of these softwares are very niche. Depending on what industry you're in, there are specific softwares for dentist offices, construction companies, eye doctors, hospital. I mean, software really has eaten the world. Like how many times have you guys had a piece of software go down at work and it prevents you from doing your job? And these Companies are called SaaS companies, which stands for software as a service. And investors love these companies for multiple reasons. For one, SaaS companies have an incredible business model. They charge a reoccurring subscription to get access to their software. See, back in the day, you could buy software once, install it on your computer and use it as many times as you want it. That's not the case anymore. Everything is a subscription. And these software companies charge per user. That's been a fantastic business model. It's led to predictable and growing reoccurring revenue. On top of that, the customers for these software companies are sticky. Once a company has a whole team using Salesforce or Workday or any software for that matter, switching to another one is a massive pain. And it's unlikely to happen. But not only is the revenue reoccurring and sticky, the best part is the margins on these products are really high. Once you build a software once the cost of adding new customers is basically zero, you're not manufacturing physical products or building factories. It's just bits and bytes. Ben Thompson from the certificate newsletter calls a zero marginal cost. I know I'm simplifying it a little bit because there's still maintenance costs and things like that, but in general the marginal cost is pretty small. And that's why the margins for these companies is very high. So when you add all that up, you can see why investors were piling into software stocks over the last 10 to 15 years. Valuations peaked in 2021. The pandemic really increase the demand for software with more people working remotely and also super low interest rates. At its peak in 2021, the S& P North American Expanded Technology Software Index, which tracks software stocks, had a forward PE of 50. To put this into perspective, the S&P 500 forward PE ratio in 2021 was around 22. So back in 2021, software was trading at an extreme premium. But these days that multiple has collapsed. The forward PE for the S and P software index is now trading under 20 for the first time ever. There seems to be a huge shift happening when it comes to software companies. Wall street is freaking out. So let's talk about why this is happening. The sell off in software has been absolutely brutal in 2026. I'm talking about one of the worst sector crashes in modern market history. There's an ETF ticker symbol IGV which tracks over 100 software companies. It's down over 20% this year so far. Some of the individual names are down even worse. Salesforce, Workday, ServiceNow and Intuit are all down more than 30% now. These are massive companies and they've lost over a third of their value in like six weeks. So what triggered this massacre? Well, it has to do with AI. The investors are increasingly worried that AI is going to make traditional software products irrelevant. AI models and agents are getting very good. The catalyst that really spooked Wall street was when Anthropic, the company behind the cloud chat bot, release a plugin in late January specifically designed to automate business tasks. They released one for lawyers that can review contracts, manage compliance and do legal research. They released another one for finance research. Anthropic is releasing new tools constantly. And that was kind of a freak out moment for the market because if an AI Plugin can do the work of a specialized software, then maybe it might eliminate the need for that software completely. Beyond that, AI also threatens the SaaS business model. You know, if AI agents start automating and replacing human workers, then these SaaS companies will have less users to sell to. So that could mean software companies might have slower growth moving forward. And there's also fears that businesses might drop SaaS products completely and just use AI to build their own custom software to solve their pain points. You know, one of the best use cases for AI is writing code. There are tools out there now like Lovable and Replit that allow users to vibe code their own custom app using just a prompt without knowing how to code. Personally, I think that fear is completely overblown, but I'm going to talk more about that later. I think the most valid bear case for SaaS companies though is that they're going to face increased competition from up and coming AI native startups. AI allows for quicker software development with less people and that could lead to newer, more nimble SaaS startups entering the space, offering a cheaper and better product to businesses. So existing SaaS companies might have to drop their prices to stay competitive, leading to lower margins. So the risks facing these SaaS companies is slower growth and lower margins and maybe even being completely replaced by AI. And that's why software companies have become a less attractive investment. Right now. Like I said earlier, The S&P 500 North American Software Index is trading under 20 times forward earnings for the first time ever. But the question is, is all of this an overreaction? Well, some very smart people think so. So let's talk about it. So are software companies cooked or is this just another classic overreaction by the market? Well, according to some smart people, including Nvidia CEO J. Wong, the sell off in software is overblown. In fact, Jensen literally called it the most illogical thing in the world.