Cloud software stocks are continuing their downward trend into 2026, a sell-off that investors believe is setting the stage for a wave of acquisitions. The WisdomTree Cloud Computing Fund (WCLD), an ETF tracking the sector, has seen a decline of over 8% year-to-date, while the broader Nasdaq has experienced a slight uptick. Prominent software companies such as Salesforce, ServiceNow, and Adobe have each fallen more than 14%, following a year of significant underperformance.
The primary driver behind this market sentiment appears to be the growing concern that artificial intelligence will fundamentally disrupt the enterprise software landscape. As IT buyers increasingly turn to AI agents to automate tasks traditionally handled by software vendors, the value proposition of existing solutions is being questioned. This fear was amplified by the recent launch of Anthropic’s Claude “Cowork” tool, an AI agent designed for enterprise customers, signaling a direct challenge to established software players.
This disruption is already prompting mid-sized software companies to explore financing options, potentially leading to acquisitions by private equity firms. Orlando Bravo, co-founder of software-focused buyout firm Thoma Bravo, expressed optimism about the current market conditions, stating that his firm is actively seeking investment opportunities in companies developing agentic solutions that integrate with existing systems. “We’re seeing just incredible buying opportunities right now,” Bravo commented, indicating his firm’s intention to be “a lot more active.”
While investors like Bravo remain bullish on the future of software in an AI-driven world, analysts point to significant vulnerabilities within the sector. Jackson Ader, an analyst at KeyBanc, identified companies focused on “seat-based” applications, such as Monday.com, Asana, and Sprout Social, as particularly exposed. These companies, all of which have experienced double-digit stock declines in 2026, are seen as less anchored to core systems of record like ERP or CRM and have yet to develop multi-product platforms that could offer a more integrated AI strategy. Representatives from Monday.com, Asana, and Sprout Social did not respond to requests for comment.
Even established companies with broader product portfolios and a significant enterprise presence are facing increased scrutiny. Salesforce CEO Marc Benioff has been actively defending his company’s position in AI, recently highlighting a strong quarterly performance and substantial cash generation. However, Benioff acknowledged the market’s current focus, noting, “Because if you don’t produce a large language model you’re evidently not in fashion right now.”
ServiceNow is taking steps to address this pressure by partnering with OpenAI to integrate its models for offering AI agents to business clients. Despite this announcement, investor confidence has not fully recovered, with ServiceNow shares experiencing a six-day decline before a modest rise, and remaining down 17% for January. Other software companies, including HubSpot, Atlassian, and Braze, have seen even steeper declines, with their stocks down over 20% year-to-date.
Rishi Jaluria, an analyst at RBC Capital Markets, suggests that the current market pullback may compel certain software companies to “explore strategic alternatives.” He further notes that new deals lacking a clear AI integration strategy are unlikely to garner significant investor interest. In a November report, Jaluria identified Asana, Box, and DocuSign as potential acquisition targets, though these companies did not comment on the analysis.
As the tech earnings season approaches, investors will be looking for clearer indications of how companies are adapting to the AI revolution or risk being disrupted by it. A key question remains the speed at which AI agents will move beyond code development to fully automate various stages of the software lifecycle. The timeline for this evolution will be critical in assessing the true impact of AI on cloud software companies and the potential for further market consolidation.
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