Is software dead?

In early 2026 software companies faced the 'SaaSpocalypse', an indiscriminate sell-off of software companies due to the rise of artificial intelligence (AI) tools capable of coding software. This sell-off raised many eyebrows and questions around whether software was indeed dead.

Long regarded as some of the most durable and profitable businesses in equity markets, the market's indiscriminate repricing of software companies was wrong.

In our view the best software businesses are entering their most productive era. The companies with the steepest innovation curves, the strongest non-replicable assets, and the willingness to act on the cost opportunity in front of them are those that will thrive.

Right now the strongest software companies are pulling two levers simultaneously, which bring both future revenue and cost benefits.

Pulling the levers

The first lever these businesses are pulling is product velocity. AI coding tools are compressing development timelines. Features that once required months of engineering time are being delivered in weeks. For a software business with an entrenched customer base and a deep product roadmap, this change significantly boost potential to develop new revenue streams, and offers the ability to widen the competitive distance from competitors. This is evident in recent financial reports from software executives, which are all pointing to this acceleration and highlighting the ability of software leaders to utilise AI for its own growth story.

The second lever is cost efficiency. In February, Jack Dorsey, chief executive of Block, made the most visible statement, reducing Block's headcount by more than 40% while promising to continue growing product velocity. Over the course of 2025, Block had been implementing AI tools, and found that paired with leaner and smaller teams, production code shipment per engineer had increased materially.

Dorsey's sentiment was mirrored by numerous other executives. META chief financial officer Susan Li recently called out power users of AI coding tools seeing 80% output gains, and Mark Zuckerberg too noted projects that required big teams previously were now being completed by a single, talented person. Spotify co-chief executive Gustav Soderstrom said its best developers haven't written a single line of code since December 2025 and Salesforce chief executive Marc Benioff in mid 2025 said AI agents were performing 30 to 50% of all work within Salesforce.

For management teams with genuine engineering competency, reaping the cost benefits of new productivity tools - be it across engineering teams or back office operations - is a tangible possibility, if acted upon. However, in order for software companies to embrace this change, C-suite engineering competency is valuable and almost a prerequisite to overcome the classic Warren Buffet term 'institutional imperative', where companies resist change and simply copy the competition.

The reinvestment opportunity and the winners of innovation

The headcount reduction at Block is estimated to result in a gross savings of over US$1 billion. The opportunity from this is not just a simple margin expansion story for software stocks, but an opportunity to unlock budget and recycle it into new innovative projects, adding further fuel to growth acceleration.

In this new era, the winners of the software race will be those with a long list of client pain points to solve, and hence a lot more innovation to complete and monetise, as well as low competition with the capability, resources or unique (non-software) assets to offer the market the same solutions.

In contrast, for a software company with a flat innovation curve, where its problems for customers are largely already solved and is in the cash flow harvesting phase of its lifecycle, it is just a matter of time before its competitors will catch up and compete for market share.

The software companies with the capacity to react and shift faster to the rise of AI than their competitors have a unique opportunity to continually drive new growth.

Square's building barriers with AI

Over the last 18 months, Block's Square has consistently increased the pace of new innovations solving real merchant problems. AI Voice Ordering now answers all incoming phone calls for restaurant sellers, handling complex menu customisation, suggesting add-ons, sending payment links, and flowing confirmed orders directly into the kitchen. This has eliminated the double entry pain in busy service periods. Order Guide standardises vendor prices by unit ($/oz) and auto-converts menus into complete ingredient lists, giving SKU-level cost insights that most small operators have never had access to. A unified POS app consolidated restaurants, retail, and services into a single platform with seven customisable modes.

Square shared its intention to build a scaled vendor network that connects sellers, automates accounts payable and financing through standardised catalogues, and eventually enables group purchasing and negotiated rates across the base. Order Guide doesn't just give sellers cost visibility, it creates the data layer for a procurement network that would make Square's merchant base collectively more powerful than any individual operator. That's a platform strategy, not a feature release.

Square AI could evolve into an autonomous business operator through capabilities such as reordering inventory when stock runs low whilst understanding the propensity for stock error rates, automating staff scheduling based on an anticipated Thursday-night-rush and even generating and A/B testing marketing campaigns. The longer Square AI is trained on a merchant's specific data such as trading patterns, seasonal demand cycles, staff behaviour, supplier pricing history, the more valuable it becomes, and the harder it will be for customer to switch to another software. This increase in switching costs makes it not only harder, but also financially more challenging, for its current customers to switch to a competitor. This builds competitive advantage via the institutional

knowledge the AI has accumulated. No matter how fast a competitor builds an app like Square using AI coding tools, they will still face a higher barrier to entry because of these engraved switching costs that Square has built up using AI, the same tool thought to increase competition and disrupt its market share.

The elixir for software

So is software dead? Hardly. The companies with the steepest innovation curves, the strongest non-replicable assets, and the willingness to act on the cost opportunity in front of them - these are the compounders that hold significant opportunity.

The structural moats in software companies built on regulatory depth, proprietary data, and workflow embeddedness cannot be replicated by AI coding tools alone, regardless of how capable those tools become.

The best software businesses are entering their most productive era today and AI will be an enabler of this rapid change if embraced by the right businesses.