AI Drives Software Sell-Off, Opens Door for M&A
Cloud software stocks are off to a rough start in 2026, continuing last year’s sell-off. Investors say the drop could trigger a wave of mergers and acquisitions.
Market Performance
The WisdomTree Cloud Computing Fund, which tracks cloud software, has fallen more than 8% this year. Meanwhile, the Nasdaq has slightly risen. Leading names like Salesforce, ServiceNow, and Adobe are down over 14%, after underperforming the market in 2025.
AI Disruption Concerns
Investors worry AI could replace key parts of enterprise software. IT buyers may turn to AI agents to handle tasks currently managed by traditional software. This fear grew after Anthropic launched Cowork, an AI agent aimed at enterprise clients.
Opportunities for Private Equity
Some mid-sized software firms may seek financing or explore sales, creating acquisition opportunities. Orlando Bravo, co-founder of Thoma Bravo, sees value in companies building AI agents compatible with existing systems. “We’re seeing incredible buying opportunities,” he said.
Vulnerabilities in the Market
Analyst Jackson Ader warns that seat-based application companies like Monday.com, Asana, and Sprout Social are most exposed. These firms lack anchor systems like ERP or CRM and have not become multi-product platforms. Even larger companies face skepticism, as Salesforce and ServiceNow defend their AI strategies.
ServiceNow partnered with OpenAI to offer AI agents to business customers, but shares still fell 17% in January. Other firms like HubSpot, Atlassian, and Braze are down over 20%.
Strategic Moves Ahead
Analyst Rishi Jaluria says the software pullback may force companies to explore strategic alternatives. Success will depend on integrating AI effectively. Tech earnings season will reveal which firms are ready to adopt AI and which may struggle.
