After years of questioning whether artificial intelligence is creating a speculative market bubble, investors are now grappling with a new question: What if its hype is real?
The “SaaS-pocalypse,” a trending term to describe the recent and dramatic selloff in global software-as-a-service (SaaS) stocks, is based on the idea that AI becomes so advanced that software becomes unnecessary.
Why would you pay for specialized accounting, sales analytics, logistics or project management software when you can ask ChatGPT, Cloud or Gemini to do it for you?
The wave of selloffs has reached Australian shores in force, wiping out billions of dollars of value from former market darlings like accounting software provider Xero and global operating systems company WiseTech.
In the US, shares of Atlassian Corp, known for its work collaboration tools, are down 50% since early January. The wealth of the company’s Australian founders, Mike Cannon-Brookes and Scott Farquhar, has collectively declined by almost $US8bn ($11.5bn) in a matter of weeks as the value of their large shareholdings has fallen.
What’s behind the ‘SaaS-pocalypse’?
Ever since AI entered the public consciousness via chatput, investors have flocked to technology stocks, excited by its prospects as a real life-changing innovation.
That enthusiasm was interrupted last year when traders began to consider how AI could impact software companies, a key component of the tech sector.
Those fears were heightened as early as 2026, when US-based Anthropic allowed users to communicate with their computers in natural language to perform complex tasks such as data analysis and expense tracking.
This is considered too disruptive for expensive SaaS applications that require the user to learn the language of the software.
The potential for disruption is clear, with some software at risk of becoming obsolete in the same way that digital photography destroyed Kodak and the touchscreen destroyed the BlackBerry.
Investors have also raised concerns over the future of the “per seat” charging model, which is a common billing model in the SaaS industry, whereby a software company charges a fee for each person who accesses it.
As Morningstar points out, in an AI-augmented future, “if one person can now do the work of two, the number of seats will be reduced”.
Australia’s technology index, which includes several big-name software companies including Xero and WiseTech, is down about 17% since the start of the year, and down more than 25% in six months.
The uneasiness has taken over other areas, with investors considering whether portfolio construction, tax planning, insurance calculations and data analysis could be AI automated, making firms that specialize in those areas redundant.
Are the concerns overblown?
Luke McMillan, head of research at Sydney-based Ophir Asset Management, says investors have “shoot first and ask questions later” by selling SaaS businesses en masse.
“The next step we’re getting to is really understanding which businesses will be negatively impacted by this,” he says.
Investment companies talk about “economic moats”, which refer to the structures a company has in place to protect its profits from competitors and market disruptions.
McMillan says one of those problems occurs when a software company uses proprietary data that AI can’t access, as opposed to software that is taken from public sources that can be easily replicated.
“There will be some who will actually have some moats that will protect them from these AI tools, and in fact, they will integrate AI into their businesses making them even better,” he says.
Morningstar equity markets strategist Lochlan Halloway says that while the “rush to the exit” was a knee-jerk reaction, there is also a risk that investors may underestimate the AI threat.
“In this case, there will be winners and losers,” he says.
Halloway says companies with unique data, complex systems that are difficult to replicate and software that connects multiple parties will be better protected from disruption.
“We don’t want to dismiss the risks that AI poses to the software-as-a-service business model, but those are the things we’re looking at to help identify which companies are more likely to avert this threat,” he says.
what happens next?
The AI age and Donald Trump’s second term have fueled a period of high volatility in global markets, with traders swinging between periods of optimism and concerns over trade wars and a tech bubble.
Narrative-driven movements, where stories determine investment decisions, differ from historical periods when stock movements are more closely tied to company earnings.
The “SaaS-pocalypse”, the AI boom, “Sell America” and the “taco” trade – the latter referring to the idea that “Trump Always Chickens Out” when facing a tariff-induced market reaction – are all examples of narratives.
Investment firms hope the market will eventually price out companies in the AI world, the same way they did after the tech boom and bust of the late 1990s and early 2000s.
Halloway points to the apparent contradiction between fears of a tech bubble and the decline in share prices of some software companies, noting that the former is based on the idea that the promises of AI will be unfulfilled, and the latter depends on AI being a major disruptive force.
“It seems like markets have got a reason to be worried about too little AI and too much AI at the same time,” he says.
