Why AI is Forcing a Reset in Software Valuation

The recent turbulence in software markets has triggered a familiar reaction: panic, followed by sweeping conclusions. Software stocks are down significantly, and AI is advancing at breakneck speed. Therefore - so the argument goes - software as we know it is under an existential threat.

That conclusion is too simplistic. What we’re witnessing is not the collapse of software, but a fundamental reset in how its value is determined.

For the past decade, a large portion of the SaaS ecosystem has operated under a relatively stable assumption: building software is hard, time-consuming, and expensive. That friction created pricing power. Many products didn’t need to be exceptional, they just needed to be “good enough” relative to the cost of building an alternative.

AI is removing that constraint. When development cycles compress from months to days, the economics of software shift dramatically. The question is no longer whether something can be built – simply because it almost always can. The more relevant question becomes whether it should be built, bought, or trusted.

This shift is quietly dividing the industry into three distinct categories.

1. Infrastructure: The Compounding Layer

Paradoxically, the easier it becomes to build software, the more demand increases for the foundational layers that support it. Every AI agent, internal tool, or rapid prototype still requires storage, compute, authentication, orchestration, and data pipelines.

This is not a shrinking market, it is a compounding one.

Infrastructure providers sit beneath the surface of innovation. They don’t compete with AI-driven development; they enable it. As the volume of software explodes, so does the need for reliable, scalable infrastructure. In many ways, these companies are entering their strongest position yet, benefiting directly from the acceleration of building activity.

2. Commodity SaaS: The Great Repricing

At the other end of the spectrum lies a large category of tools that solve relatively straightforward problems: form builders, scheduling tools, lightweight dashboards, internal workflow apps.

These products historically thrived on convenience. But convenience is rapidly being commoditized. When a customer realizes they can replicate 70–80% of a product’s functionality in a weekend using modern tooling, the perceived value - and therefore the willingness to pay - drops sharply. Even if they never actually build it, the option to do so changes the pricing dynamic.

This doesn’t mean these tools disappear. It means their margins compress, competition intensifies, and pricing begins to reflect actual technical complexity rather than historical inertia.

Many companies in this category are not facing extinction, but they are facing a necessary correction.

3. High-Stakes Software: Trust as a Moat

The third category moves in the opposite direction.

In domains where reliability, compliance, and accountability are critical - think financial systems, healthcare platforms, enterprise data environments - software is not just a tool; it is a liability surface. And liability does not tolerate improvisation.

No serious organization will “vibe-code” its compliance stack or entrust sensitive customer data to hastily assembled systems. In these environments, trust becomes the defining factor. Certifications, auditability, uptime guarantees, and proven processes are not differentiators—they are prerequisites.

As the noise in the market increases and more software is built faster, buyers become more selective about what they rely on. The result is a strengthening of companies that can demonstrate depth, reliability, and long-term credibility.

A Market That Is Splitting, Not Shrinking

The common thread across these shifts is not contraction, it is divergence.

More software will be built in the next five years than in the previous twenty. But it will not be valued uniformly. What we will see is the following:

• Infrastructure will grow because it underpins everything.

• Commodity tools will become cheaper because building them is easier.

• High-stakes systems will become more valuable because trust becomes scarce.

This is not a disruption that eliminates software. It is a sorting mechanism that clarifies where real value lies. The defining question for software companies is no longer: “Can we build this?” It is: “Why should anyone trust us to run it?”. The companies that can answer that convincingly will define the next era of the industry.