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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

1/23/26 6:04AM

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 Kawa5m

POET Technologies surges above $10 for first time in 4 years amid explosion in call volumes

POET Technologies is up nearly 40% this week as options market activity goes haywire in a faint echo of what got the stock on retail traders’ radars in October.

As of 11:12 a.m. ET, more than 10 calls have changed hands for every put traded. This bullish impulse has propelled the stock above the $10 threshold for the first time since March 2022.

Shares of the optical communications firm briefly dipped last week after Wolfpack Research said it was short the company because its investors would be exposed to an “IRS tax nightmare.”

The company responded that day saying it was taking measures for US shareholders that “should mitigate certain potential adverse US federal income tax consequences to it that could otherwise result from the Company’s status as a passive foreign investment company.”

Luke Kawa

The parabolic surge in Avis reached new heights, with shares halted for volatility

More motivated buyers than motivated sellers.

Travelers at Sacramento International Airport (SMF)

Matt Phillips2h

GE Aerospace falls after leaving earnings guidance unchanged

Jet engine maker GE Aerospace slid in early trading Tuesday, as its better-than-expected Q1 results were overshadowed by uninspiring guidance.

It reported:

Q1 adjusted revenue of $11.61 billion vs. the $10.71 billion consensus expectation.
Adjusted earnings per share of $1.86 vs. the $1.60 consensus estimate.

But management left full-year 2026 adjusted EPS guidance where it was at between $7.10 and $7.40, compared to a consensus expectation of $7.49 from analysts.

“We’re holding our full-year guidance across the board, given the macro uncertainty, though, with our strong start to the year, we are trending toward the high end of that range,” CEO Larry Culp said on the conference call.

GE Aerospace hit an air pocket in March as the start of the US war against Iran sent energy prices soaring and hurt expectations for the profitability of commercial carriers. A rally in April had pushed the stock close to positive territory for the year, but it’s solidly in the red after the results today.

Max Knoblauch2h

Trump says he doesn’t like potential United-American merger but would “love somebody to buy Spirit”

President Trump on Tuesday told CNBC that he doesn’t like the idea of a United Airlines-American Airlines merger, but would “love somebody to buy Spirit.”

“Maybe the federal government should help that one,” Trump said on Tuesday, referring to Spirit’s attempts to emerge from bankruptcy.

Trump’s thoughts on United-American are an update from last week, when White House Press Secretary Karoline Leavitt said the potential megamerger was “not something the president or the White House have an opinion on or are weighing in on.”

American and United shares dipped following Trump’s comments, as did Spirit rival Frontier Airlines.

Trump: "I'd love somebody to buy Spirit Airlines. Maybe the federal government should help that one out. I told my people." pic.twitter.com/YS1GAMPeQ3
— Aaron Rupar (@atrupar) April 21, 2026

Claire Yubin Oh & David Crowther6h

BYND rises on elevated volumes, has now doubled in the last 10 days after product revamps

Beyond Meat soared as much as 18% in overnight trading, extending a winning streak that has seen the stock nearly double since April 10, after gaining over 41% in yesterday’s session alone.

That’s a significant turnaround for the meat alternative company, which just three weeks ago was tanking after issuing weak sales guidance... with the company’s management laying blame on American society for its business struggles.

Beyond repair?

BYND has had two distinct moments in the sun: one as a bona fide startup stud promising to transform the food industry forever in 2020 and 2021, and the other as a meme stock, when the company suddenly found itself at the center of a retail trading frenzy last October after a tumultuous few years.

Sparking this latest tick higher appears to be a new product release from last Thursday, when the company revealed that Beyond Immerse, the company’s first functional beverage line, had signed a distribution agreement with Big Geyser — one of the country’s largest nonalcoholic distributors. That followed an update to its breakfast sausage range just three days earlier.

It’s a big ask for a new sausage or protein-packed drinks with fruity flavors — both highly competitive categories — to fully save a company that’s seen sales sink, losses balloon, and its share price crater through the years. But the product news, combined with Beyond appeasing Nasdaq regulators by finally filing its delayed 2025 annual report, seems to have been enough to reinvigorate investor interest, shaking off some concerns about a delisting.

Perhaps most importantly, however, is that retail traders are once again fishing in the higher-risk, higher-reward end of the stock market pond. Risk-on assets have ripped higher in the last few weeks as geopolitical risks calmed, bringing indexes to an all-time high and seeing meme-like stocks soar on speculative excitement rather than business fundamentals. Just from last week, we’ve seen Allbirds and Myseum skyrocket on surprise AI pivot news. Retail favorites like quantum name IonQ have also caught a bid.

But, where Beyond’s concerned, this ain’t 2021 yet. And it’s still nowhere near last October, either:

Per Bloomberg data, there’s still plenty of interest in betting against the company — short interest as a percent of the equity float is at 35% — but it still pales compared to the 83% level from its October high.

In simple volume terms, BYND traded only some $224 million as of yesterday — a tiny fraction of October’s busiest day, when $11 billion changed hands.