Software Stocks Tumble as AI Disruption Fears Trigger M&A Activity and Private Equity Interest

Software selloff sparked by AI sets stage for potential big year of M&A, investors say

Orlando Bravo, co-founder of private equity firm Thoma Bravo, told CNBC that he sees "incredible buying opportunities right now." Cloud software stocks have started this year where they left off in 2025: selloff mode. The continued downward spiral is setting the stage for a flurry of acquisitions, investors told CNBC. The WisdomTree Cloud Computing Fund, which tracks cloud software, has dropped more than 8% so far this year, while the Nasdaq is slightly up. Leading software names like Salesforce, ServiceNow and Adobe are down more than 14% after badly underperforming the market a year ago. The overriding concern is that artificial intelligence will eventually displace key pieces of the enterprise stack, as IT buyers turn to AI agents to handle tasks currently handled by software vendors, both large and small. Those fears were amplified last week when Anthropic's Claude launched an AI agent tool named Cowork that is aimed at the enterprise customer. A senior investor at a large private equity fund who asked not to be named in order to speak candidly on the subject said the disruption in software is happening today and will force several mid-sized software companies to seek financing options, potentially spurring acquisitions by private equity. Orlando Bravo, co-founder of software-focused buyout firm Thoma Bravo, is looking to buy the dip, and sees value in companies that are building their own agentic solutions to work with their existing systems. "We're seeing just incredible buying opportunities right now," Bravo told CNBC's Sara Eisen in Davos on Wednesday. He said his firm is doing deals and "will be a lot more active." While investors like Bravo remain bullish on software in an AI-dominated world, analyst Jackson Ader at KeyBanc sees real vulnerabilities. He conducted an analysis of the major threats facing software in August, and said then that seat-based application companies like Monday.com, Asana and Sprout Social are the most exposed. All three stocks have seen double-digit drops in 2026. In that same note to clients, Bader said those companies aren't tied to an anchor system of record like enterprise resource planning (ERP) or customer relationship management (CRM), and have yet to become multi-product platforms. Representatives from Monday, Asana and Sprout didn't respond to requests for comment. Even companies with a wider breadth of products and more established enterprise footprint are facing significant market skepticism. Salesforce CEO Marc Benioff has spent months defending his company and trying to reassure investors that it's well-positioned in AI. In Davos, Benioff told Eisen that the company's latest quarter was "the best quarter we've ever had in our careers," and that "we're one of the largest cash-producing companies in the world." "But it's not enough," Benioff said, referring to the market action. "Because if you don't produce a large language model you're evidently not in fashion right now." ServiceNow is responding to the pressure by joining the potential competition. On Wednesday, the company announced a deal with OpenAI to use its models to offer AI agents to business customers. The news didn't ease concerns. ServiceNow shares dropped for six consecutive trading days before rising on Thursday, and are down 17% in January. HubSpot, Atlassian and Braze are having an even worse start to the year, with shares of each down more than 20%. Rishi Jaluria, an analyst at at RBC Capital Markets, told CNBC that the recent pullback in software stocks could force certain companies to "explore strategic alternatives," and that any new deals that don't have a compelling AI angle won't gain much traction with investors. In a note published in late November, Jaluria highlighted Asana, Box and DocuSign as potential acquisition targets in software. The companies didn't respond to requests for comment. With tech earnings season kicking into high gear next week, Wall Street will start to get a clearer picture of where particular companies stand in adopting AI or getting swallowed by it. Luria said one of the crucial questions is how quickly AI agents like Claude's Cowork go beyond developing new code and actually automate different parts of the software lifecycle. That timeline will be critical in understanding the reality of the AI threat and how soon cloud software companies might feel the pain. -- CNBC's Noah Broder contributed to this report. AI coding enters the mainstream

Wall Street Is Down on Software Stocks. This Expert Says That's 'Absolutely Wrong'

The software industry has been hammered by concerns about AI's uncertain commercial potential, as well as fears that the nascent technology will upend established business models. Anxious software investors worry that artificial intelligence is disrupting the multi-trillion dollar industry. One veteran tech investor says those concerns are misplaced. Orlando Bravo, founder and managing partner of tech-focused private equity firm Thoma Bravo, on Wednesday called the narrative that AI is going to eat software "absolutely wrong," in an interview with CNBC. The reason: They know what the companies and industries they serve need to succeed -- and are still positioned to deliver it. "The franchise value of most software companies is [their] deep domain knowledge," Bravo said. That, he said, situates software companies at the intersection of AI capabilities and enterprise needs. "If you want to see wide adoption in the enterprise of AI, these are the companies that will do it," Bravo said. "These are the companies that hold the key. The software industry has recently been dogged by concerns that incumbent software's share of enterprise IT budgets will shrink as companies dedicate more resources to AI-native applications. Investors are also concerned that the industry's profit margins will narrow as competition ramps up. Those concerns have created a chasm between the tech sector's best and worst-performing stocks. The PHLX Semiconductor Index (SOX) is up about 12% this year -- after rising 42% last year -- while the iShares Expanded Tech-Software Sector ETF (IGV) is down more than 10%. Shares of software giants Applovin (APP), Intuit (INTU), and ServiceNow (NOW) are all down about 20% so far this year, making them the S&P 500's worst performers. Meanwhile, shares of flash memory device maker Sandisk (SNDK) have doubled in the past three weeks. Analysts expect spending on AI infrastructure will continue to lift semiconductor stocks this year. A shortage of memory and data storage hardware could sustain the momentum in stocks like Sandisk and Micron (MU), according to a recent Bank of America note. Evidence that tech giants will continue to spend aggressively on data center infrastructure could re-energize shares of Nvidia (NVDA) and its AI chip competitors like Broadcom (AVGO) and Advanced Micro Devices (AMD), according to the analysts. Software may have a tougher year ahead, but investors shouldn't write the industry off entirely, according to Oppenheimer analysts. Investor sentiment toward software stocks could improve this year if AI initiatives across the economy boost the industry's top line and backlog growth, or if software companies themselves demonstrate AI is boosting efficiency and improving margins, the analysts said. Bravo said he's already seeing evidence AI is doing that. "Many of our companies just finished their year in December," he said, "and we saw a big boom in the quarterly bookings of these companies, partly because of take off in AI."