AI Threatens Traditional Software Stocks; Analysts Warn of Growing Risk

TLDR

• Citi reduced six software stocks — Similarweb, Docusign, Autodesk, Nice, CCC, and Veeva — from Buy to Neutral
• Citi lowered price targets for all six, with reductions exceeding 40% in some cases
• Piper Sandler identified Anthropic’s new Claude Managed Agents as a direct challenge to established software firms
• Both institutions show a preference for hyperscalers such as Microsoft and Oracle over traditional software enterprises
• Jim Cramer stated that the strategy of “buying hardware and selling software” has returned and could persist

(SeaPRwire) –   On Friday, Citi Research downgraded six application software stocks, moving them from Buy to Neutral. The affected companies are Similarweb, Docusign, Autodesk, Nice, CCC Intelligent Solutions, and Veeva Systems. All six stocks experienced declines during Friday’s trading session.

Citi analyst Tyler Radke noted that these downgrades stem from a lack of near-term catalysts and increasing apprehension that AI is beginning to undermine traditional software business models. “We believe most of these are good companies and may be well positioned long-term but don’t have exciting 12-month catalysts,” Radke wrote.

Citi also implemented significant reductions to price targets. Docusign was lowered from $99 to $50. Veeva dropped from $291 to $176. Similarweb suffered the steepest cut, falling from $8.50 to $3.

DocuSign, Inc., DOCU

Radke cautioned that privately held AI companies are projected to generate more than $100 billion in net-new revenue in the coming years. This figure contrasts with the $50 billion expected from traditional application software. He also highlighted rising software optimization expenses and vendor consolidation as near-term hazards.

Anthropic Agents Add to Sector Pressure

Piper Sandler analyst Billy Fitzsimmons pointed to a separate factor contributing to the sector’s decline. Anthropic unveiled Claude Managed Agents, a pre-configured agent system designed for long-running and asynchronous tasks.

Fitzsimmons expressed concern that Anthropic’s agents will compete directly with those developed by established software firms. He anticipates continued bearish sentiment toward the software sector through at least the end of the year.

Piper Sandler downgraded several names in the sector and stated a preference for firms that monetize AI compute directly. It identified Microsoft and Oracle as top selections, citing their Azure and Oracle Cloud Infrastructure operations.

Microsoft trades at a forward price-to-earnings ratio of 20x based on 2027 estimates and generates $77.4 billion in levered free cash flow. Despite a 27% drop over the past six months, Piper Sandler views it as undervalued.

Hardware Stocks Gain as Software Falls

CNBC’s Jim Cramer highlighted the widening gap between hardware and software stocks on Thursday. He remarked that the “buy hardware, sell software” strategy, which was prominent earlier in 2026, has re-emerged.

Salesforce dropped nearly 3% and Adobe fell approximately 4% on Thursday. The IGV software ETF, a key benchmark for the industry, declined by more than 4%. CrowdStrike fell 7.5%, largely due to its inclusion in the fund, despite being a cybersecurity firm.

On the hardware front, Marvell Technology and Intel each saw gains of nearly 5%. Corning, a supplier of data center materials, rose 2.85%.

Cramer noted that companies supporting AI infrastructure are outperforming, while enterprise software is being viewed as a declining business. He added that this trend does not appear likely to reverse in the near future.

Piper Sandler also named Global-e Online as a preferred stock. The company is linked to ecommerce transaction volumes rather than software seat counts and is projecting 29% revenue growth for the year.