Key Takeaways
- Citi Research cut ratings on six software companies — Similarweb, Docusign, Autodesk, Nice, CCC, and Veeva — dropping them from Buy to Neutral
- Price target reductions exceeded 40% for several companies as Wall Street reassesses the sector
- Anthropic’s Claude Managed Agents identified by Piper Sandler as emerging competitive threat to established software providers
- Investment firms increasingly recommend hyperscale cloud providers like Microsoft and Oracle instead of legacy software firms
- CNBC’s Jim Cramer observes the hardware-over-software rotation has returned with staying power
In a significant shift, Citi Research stripped Buy ratings from six application software companies on Friday, moving them to Neutral. The impacted firms include Similarweb, Docusign, Autodesk, Nice, CCC Intelligent Solutions, and Veeva Systems. Share prices for all six companies declined following the announcement.
Tyler Radke, analyst at Citi, explained the downgrades stem from limited upcoming catalysts combined with mounting evidence that artificial intelligence poses genuine risks to conventional software business models. “These companies maintain strong fundamentals and could succeed over the long haul, but the next twelve months lack compelling drivers,” Radke noted in his research.
The firm simultaneously slashed price projections dramatically. Docusign’s target plummeted from $99 to $50. Veeva’s estimate dropped from $291 to $176. Similarweb experienced the most severe reduction, tumbling from $8.50 down to just $3.
Radke highlighted that private AI ventures are projected to generate over $100 billion in incremental revenue in upcoming years. This dwarfs the $50 billion expected from conventional application software providers. Additional headwinds include escalating software optimization expenses and accelerating vendor consolidation trends.
Claude Agents Intensify Competitive Landscape
Piper Sandler’s Billy Fitzsimmons identified another pressure point weighing on software equities. Anthropic recently unveiled Claude Managed Agents, a ready-to-deploy, customizable agent platform engineered for extended and asynchronous workflows.
Fitzsimmons noted this development fuels worries that Anthropic’s agent technology will directly challenge solutions from incumbent software vendors. He anticipates continued negative sentiment toward the software industry through the remainder of the year at minimum.
Piper Sandler adjusted ratings downward across the sector while expressing preference for enterprises that directly monetize AI computing power. The firm highlighted Microsoft and Oracle as premier opportunities, pointing to their Azure and Oracle Cloud Infrastructure platforms respectively.
Microsoft currently commands a forward price-to-earnings multiple of 20x based on 2027 projections while producing $77.4 billion in levered free cash flow. Even after dropping 27% over the previous six months, Piper Sandler views the stock as attractively priced.
Infrastructure Stocks Climb as Application Software Retreats
Jim Cramer from CNBC emphasized the expanding gap between hardware and software performance during Thursday’s broadcast. He remarked that the “buy hardware, sell software” investment theme that dominated early 2026 has made a decisive comeback.
Salesforce declined nearly 3% while Adobe surrendered roughly 4% on Thursday. The IGV software ETF, representing a critical sector benchmark, lost more than 4%. CrowdStrike tumbled 7.5%, impacted primarily by its inclusion in the fund despite its cybersecurity focus.
Conversely, hardware manufacturers thrived. Marvell Technology and Intel each climbed approximately 5%. Corning, a supplier of data center components, advanced 2.85%.
Cramer observed that businesses enabling AI infrastructure are substantially outperforming while enterprise software faces treatment as a sunset industry. He suggested this pattern shows little indication of reversing anytime soon.
Piper Sandler also spotlighted Global-e Online as a favored selection. The company derives revenue from ecommerce transaction volume rather than software subscription metrics, projecting 29% revenue expansion for the current year.
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