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AI has given public markets the software scaries... and it’s spreading to private markets, too

As AI replaces software engineers and vibe-coding startups surge, hundreds of billions of dollars’ worth of venture bets on traditional software firms are facing a brutal reset.

Hyunsoo Rim, David Crowther

Since ChatGPT burst onto the scene, it has been blamed (or credited) for reshaping just about everything it touches, from knocking down college kids’ favorite homework shortcut to upending the job market. Now, the AI specter has spooked the very industry that created it: software.

At a time when most of “big tech” is flying, a lot of “medium tech” is getting crushed. As Sherwood News’ Luke Kawa observed last week, a range of formerly high-flying software companies, including Salesforce, Adobe, and Atlassian, now trade at valuation multiples clustered below 5x their respective sales — while the iShares Expanded Tech Software ETF (IGV) is down more than 7.5% year to date.

Behind that sell-off is growing anxiety around a new class of AI-native, agentic tools — most visibly Anthropic’s Claude Code, though other major models like OpenAI’s ChatGPT and Alphabet’s Gemini offer similar capabilities — that promise to make software cheaper and quicker to build.

De-moated

As these tools improve, investors are increasingly questioning whether traditional “software as a service” (SaaS) models still have defensible moats after years of “eating the world.”

That concern isn’t theoretical. According to data from Similarweb, a growing cohort of “vibe-coding” startups have seen their monthly traffic surge over the past year, as more users experiment with building software from simple prompts without needing much programming skill. Lovable, perhaps the most well known of the specific vibe-coding platforms, went from a revenue run rate of $1 million to $100 million in just eight months; its CEO describes his work as “building the last piece of software.” Another, Emergent, just tripled its valuation this week after reporting rapid growth.

The problem is that these AI-native startups are weighing not only on public stocks, where the damage is at least visible through a brutal repricing, but also on private markets, where valuations are more opaque and liquidity for early employees and investors is typically delayed until a big exit — usually an acquisition or an IPO.

Well-known venture capitalist and podcaster Harry Stebbings recently wrote on X that “we have a big problem. The venture model doesn’t work with the current public market revenue multiples.”

For decades, software has been venture capital’s favorite place to park money. PitchBook data shows that the sector has consistently pulled in roughly a quarter of all US VC dollars throughout the 2010s. In recent years, that dominance has only grown, with software startups absorbing ~$172 billion in 2025 alone, more than half (53%) of all venture capital invested.

But while software’s dominance hasn’t changed, where the money inside the sector is going has quietly flipped.

Just a few years ago, B2B SaaS (think software for HR teams, accounting teams, finance teams) was the hottest thing in venture capital. Last year, however, startups tagged as “AI and machine-learning” attracted a larger share of VC funding than SaaS software companies for the first time, per PitchBook. As venture dollars migrate toward AI startups, it’s getting harder for traditional, non-AI-native software firms to raise fresh funding, just as the prices they can expect at exit are coming down.

Chamath Palihapitiya, a high-profile venture investor, put it bluntly on X this week (emphasis ours):

“...the Great SaaS Meltdown has started and there’s no going back.

What exactly is happening?

In short, hi growth, low/no profitability SaaS is no longer a winning strategy because the big question mark is the durability of that growth in the short term and, because of AI, the lack of profits in the long term. Every SaaS company has sold the dream (to investors and employees) that they will growth quickly now, and harvest lots of cash later. With AI, this assumption may be completely out the window.”

The hype now is all about agentic AI — chatbots and assistants that can execute tasks — and dozens of modestly successful software startups were left sailing in the wrong direction as the winds changed. Some are working hard to pivot, but for others it might be too late.

Over the past decade, dozens of SaaS firms raised capital at double-digit revenue multiples, fueled by the belief that software was the ultimate “sticky” asset. In the 2010s, they were valued at well above 10x revenue on average, per PitchBook. From 2020 to 2025, those multiples averaged ~22x, drawing in as much as ~$466 billion in venture capital.

With more public software stocks now trading closer to 4x to 5x sales, however, that math may no longer hold, potentially capping what many of those legacy software firms can realistically hope to sell for down the line.

Whether the software scaries are overdone has yet to be seen. As one colleague recently noted: is a dentist in Idaho really going to vibe code their own software for keeping track of their patients’ appointments?

Luke Kawa2h

Nvidia gains on report that Chinese officials told domestic tech champions to progress with plans for H200 imports

The “will Xi, won’t Xi?” of Nvidia’s quest to send AI chips to China got some positive news, reversing a string of recent negative reports.

Per Bloomberg, Chinese officials told leading domestic tech champions including Alibaba, Tencent, and ByteDance that they can progress in their preparations to import Nvidia’s H200 chips, and “are now cleared to discuss specifics such as the amounts they would require,” citing people familiar with the matter.

Shares are up 1.5% as of 8:06 a.m. ET.

The outlet had previously reported that China would begin to allow H200 imports for commercial use “as soon as this quarter.” However, that was followed by reports from The Information, the Financial Times, and Reuters that Chinese companies’ ability to access these AI chips would be limited and that suppliers had paused production following what was tantamount to an import ban.

The seemingly conflicting reports from various outlets reflect the tug-of-war within the Chinese policy apparatus, which aims to balance competing priorities: bolstering its AI capabilities (which argues for using the best technology available, even if that’s from foreign sources) and supporting the development of its domestic semiconductor manufacturing industry (which pushes in the opposite direction).

Luke Kawa, Matt Phillips

Intel tumbles as pleas for time to deliver its turnaround fall on deaf ears

Traders had little patience for Intel after the stock’s hot start to 2026 saw it gain nearly 50% coming into the print.

Intel INTC Q2 Earnings report Lip-Bu Tan

Max Knoblauch15h

Alaska Airlines dips following weaker-than-expected 2026 earnings guidance

Alaska Airlines, America’s fifth-largest airline, reported its fourth-quarter and full-year results for 2025 after the market closed Thursday. Its shares fell 2% in after-hours trading.

The airline reported adjusted fourth-quarter earnings of $0.43 per share, beating the $0.11 expected by Wall Street analysts polled by FactSet. Its Q4 passenger revenue climbed 2% to $3.25 billion.

For the current quarter, Alaska guided for a 1% to 2% increase in capacity and an adjusted loss of $1.50 to $0.50 per share, compared to the $0.77 loss per share expected by analysts. The airline forecast full-year earnings of between $3.50 and $6.50 per share for 2026. The $5 midpoint falls short of analyst estimates of $5.52 per share.

“To hit the higher end of our guidance range we would require sustained macroeconomic recovery in 2026, at or improving on trends seen in the first three weeks of the year, and for fuel prices to stabilize,” the company said in its report.

Earlier this month, the carrier placed its largest-ever plane order, securing 110 Boeing jets to support its international growth ambitions. It plans to add flights to Rome, London, and Iceland this summer, and has said it will boost its premium seat offerings this year — in line with a wider trend of travel trends reflecting a “K-shaped economy.”

Intel slumps after Q1 guidance disappoints

The bad outlook offset strong Q4 results.

Matt Phillips18h

Luke Kawa18h

Plug Power jumps amid surge in call activity as CEO Andy Marsh hosts AMA

Plug Power surged on Thursday, jumping nearly 17% amid elevated call activity as outgoing CEO Andy Marsh hosted an “ask me anything” on the r/PlugPowerStock subreddit.

As many as 192,581 call options changed hands, more than 4x the 20-day average — call options with a strike price of $4 that expire in mid-June were the most active contract.

Marsh’s appearance was aimed at building support for the board’s recommendations that its investors vote in favor of three proposals at a special meeting of shareholders slated for next week. These proposals include: allowing votes to be decided by a majority of voters rather than a majority of shareholders, enabling an increase in the company’s share count, and a third measure to delay this special meeting in the event that there aren’t enough votes for either of those two proposals to pass.

During the session, Marsh made the following points:

Management really doesn’t want to have to do a reverse stock split, but would feel forced to do so if the second proposal fails to pass. Per a recent filing from Plug, “Without additional authorized shares, the Company will not be able to: meet its contractual obligations to increase authorized shares of common stock by February 28, 2026; raise capital necessary for operations and growth; and execute on its business plans and strategy.”
Plug plans to lean even more into opportunities to offer power to AI data center customers, with Marsh writing that incoming CEO Jose Luis Crespo will offer more details on this in a follow-up AMA scheduled for March.