Key Takeaways
- Six major software companies received downgrades from Citi, shifting from Buy to Neutral ratings — Similarweb, Docusign, Autodesk, Nice, CCC, and Veeva
- Price targets plummeted across the board, with reductions exceeding 40% for several firms
- Anthropic’s Claude Managed Agents identified by Piper Sandler as existential risk to established software providers
- Hyperscalers including Microsoft and Oracle emerge as analyst favorites over conventional software firms
- Market veteran Jim Cramer observes hardware-software divergence returning with staying power
On Friday, Citi Research delivered a sobering message to investors, downgrading half a dozen application software companies from Buy to Neutral. The affected firms include Similarweb, Docusign, Autodesk, Nice, CCC Intelligent Solutions, and Veeva Systems. Each stock experienced declines during Friday’s session.
According to Citi’s Tyler Radke, the downgrades stem from limited near-term growth opportunities combined with mounting evidence that artificial intelligence is beginning to disrupt established software revenue models. “While we recognize these are quality enterprises potentially positioned for long-term success, we see limited compelling catalysts over the next 12 months,” Radke explained.
The firm implemented aggressive price target reductions alongside the rating changes. Docusign’s target plunged from $99 to $50. Veeva’s projection dropped from $291 to $176. Similarweb experienced the most dramatic revision, tumbling from $8.50 to just $3.
Radke highlighted that private AI enterprises are projected to capture over $100 billion in incremental revenue during upcoming years. This dwarfs the estimated $50 billion growth expected from conventional application software providers. Additional headwinds include escalating software optimization expenses and accelerating vendor consolidation trends.
Claude Managed Agents Intensify Industry Concerns
Piper Sandler’s Billy Fitzsimmons identified another critical pressure point affecting software valuations. Anthropic’s recent launch of Claude Managed Agents—a ready-to-deploy, customizable agent framework built for extended and asynchronous workflows—has sparked fresh anxiety.
Fitzsimmons warned that these AI agents will directly challenge solutions developed by incumbent software vendors. He anticipates persistent negative sentiment toward the software sector extending through year-end at minimum.
Piper Sandler executed downgrades within the category while pivoting toward businesses that directly monetize AI computational resources. The firm highlighted Microsoft and Oracle as preferred investments, emphasizing their Azure and Oracle Cloud Infrastructure platforms respectively.
Microsoft currently trades at a forward price-to-earnings multiple of 20x based on 2027 projections while producing $77.4 billion in levered free cash flow. Despite sliding 27% over the previous six months, Piper Sandler views the stock as attractively priced.
Infrastructure Players Rally While Software Retreats
CNBC’s Jim Cramer drew attention to the widening performance gap between hardware and software equities during Thursday’s broadcast. He noted the “buy hardware, sell software” strategy that characterized early 2026 trading has made a definitive comeback.
Salesforce declined nearly 3% while Adobe surrendered approximately 4% on Thursday. The IGV software ETF, a prominent sector indicator, tumbled more than 4%. CrowdStrike plummeted 7.5%, suffering primarily from its inclusion in the fund despite its cybersecurity focus.
Conversely, hardware-oriented stocks rallied. Marvell Technology and Intel each advanced close to 5%. Corning, a critical supplier of data center materials, climbed 2.85%.
Cramer observed that businesses enabling AI infrastructure are significantly outperforming while enterprise software is increasingly perceived as a contracting industry. He suggested this pattern shows little indication of reversing soon.
Piper Sandler also singled out Global-e Online as a favored investment. Unlike traditional software firms, the company benefits from ecommerce transaction volume rather than software licensing, and management projects 29% revenue expansion this year.
