2026년 2월 21일 · Unknown · financial · 출처 Yahoo Finance
This article first appeared on GuruFocus.
Software is eating the world was the meme for the first 20 years of this century. Now it seems that AI has started to eat Software.
I have noticed that over the last year, many large software company stocks have not being doing as well as before. Since the advent of AI, the PE Ratios of these companies have started to compress suggesting a cooling of investor enthusiasm.
Technology has underperformed the overall market and within the Technology sector, Software has been the worst performing industry.
Is AI now threatening Software Companies? Is AI now threatening Software Companies?
Fears of AI disruption may have contributed to PE ratio compression for software companies like Adobe (NASDAQ:ADBE), ServiceNow (NYSE:NOW), Salesforce (NYSE:CRM), and Workday (NASDAQ:WDAY) over the last five years, particularly intensifying since 2023, as AI-native competitors emerged. Current PE ratios (as of early 2026) stand notably below their 2021 peaks and multi-year averages: ADBE at ~18x versus 61x in 2021 and a 5-year average of 42x; NOW at ~77-105x versus 560x in 2021 and a 5-year average over 300x; CRM at ~30x versus historical peaks over 200x; WDAY at ~79-88x versus a 10-year average of 167x.
The chart below shows PE Ratio's without Non-Recurring Items (PE w/o NRI) for selected business oriented Software as a Service Vendors. Average drawdown from Peak, over 5 years is more than 60%.Is AI now threatening Software Companies?
ADBE Data by GuruFocus
A similar dynamic is observed with Price to Sales (PS) Ratio.Is AI now threatening Software Companies?
ADBE Data by GuruFocus
Further, observations show that the reduction in PE & PS Ratio is mostly due to investor sentiment as growth in revenue and operating earnings remains relatively strong.
ADBE CRM NOW WDAY TSX:CSU PE Ratio Current 14.13 19.71 38.3 21.53 60.75 PE Ratio 2020 53.67 45.85 109.65 77.66 120.06 PE Compression -39.54 -26.14 -71.35 -56.13 -59.31 1-Year Operating Income Growth Rate (Per Share) 18.5 22.5 38.2 102.2 33.2 3-Year Operating Income Growth Rate (Per Share) 16.3 140.9 73 25.1 5-Year Operating Income Growth Rate (Per Share) 16.7 88.1 84.2 24.4 10-Year Operating Income Growth Rate (Per Share) 25.6 22.7 1-Year Total Revenue Growth Rate 10.5 8.4 21.1 13.2 19 3-Year Total Revenue Growth Rate 10.5 12.7 23 18 29.9 5-Year Total Revenue Growth Rate 12.4 17.5 25.8 18.6 27.1 10-Year Total Revenue Growth Rate 17.6 22.9 31.8 26.1 21.2
Current PE ratios for ADBE, CRM, NOW, WDAY and CSU are significantly lower than their 2020 levels, signaling compressed valuations across these SaaS enterprise software firms amid market pressures. Growth metrics are healthy over 10,5, 3 and 1 year periods with CRM and NOW showing explosive operating income surges over 3 and 5 years, while WDAY lags at zero growth in those periods but has shown explosive growth over 1 year. Revenue growth remains positive for all over 3-10 years.
Story Continues
Large Enterprise software companies like MSFT and SAP are not yet much affected by PE compression but that could change. MSFT is of course a big player in the AI revolution, of course.
MSFT SAP PE Ratio Current 31.6 31.67 PE Ratio 2020 33.99 22.62 PE Compression -2.39 9.05 1-Year Operating Income Growth Rate (Per Share) 20.3 30.6 3-Year Operating Income Growth Rate (Per Share) 15.9 6.5 5-Year Operating Income Growth Rate (Per Share) 18.9 4 10-Year Operating Income Growth Rate (Per Share) 19.6 4.3 1-Year Total Revenue Growth Rate 15.6 9.7 3-Year Total Revenue Growth Rate 12.4 8.2 5-Year Total Revenue Growth Rate 14 4.6 10-Year Total Revenue Growth Rate 12.8 5.8
My overall impression from the above analysis is that business growth of the software houses remains healthy so the compression in the PE Ratio is likely due to other reasons, such as investor sentiment. PE ratios have dropped sharply since 2020: ADBE from 53.67 to 14.13 (74% decline), CRM from 45.85 to 19.71 (57% decline), NOW from 109.65 to 38.3 (65% decline), WDAY from 77.66 to 21.53 (72% decline). This suggests improved earnings relative to prices or sector-wide derating, making most appear cheaper on a forward basis.
Possible Reasons for reduced Investor Sentiment
Reduction in demand for Licenses/Seats
Investor concerns center on AI eroding seat-based pricing models, boosting productivity to reduce software license needs, and enabling rivals like OpenAI, Anthropic, and startups to disrupt incumbents. Stocks like ADBE and CRM shed over 20-25% in value in the past year alone amid events like Anthropic's "Cowork" launch and OpenAI's enterprise push, with analysts citing AI competition and slow adoption of incumbents' AI features. Goldman Sachs and others, note fears of margin compression and survival risks for SaaS giants.
Seat-based pricing in SaaS, which charges per user or license, is eroding due to AI-driven shifts toward usage-based, outcome-based, and hybrid models that better align costs with actual value delivered. This transition reflects maturing SaaS markets, cost-conscious buyers, and AI's ability to automate tasks across fewer seats
AI Automation Impact
AI agents and tools boost employee productivity, reducing the need for multiple per-user licenses as one human oversees automated workflows. For instance, AI handles routine tasks in CRM or project management, allowing firms to consolidate vendors and seats while questioning upgrades for marginal features. One human worker using AI Agents can over-see a larger part of a work-flow reducing the number of seats required.
Pricing Evolution
Dynamic modelsbundling AI credits into base plans, usage tiers, or per-outcome feesemerged dominant in 2025-2026, with over 1,800 pricing changes signaling seats' decline. Hybrid seat-plus-usage structures persist but face pressure as AI enables outcome-focused billing
Rise of AI enabled Programming Tools
AI programming tools like GitHub Copilot, Cursor AI, and Claude's code interpreter are fueling a s…