Software stocks have come under pressure from a negative narrative that began last year, and picked up steam in January.
The bears say AI will disrupt cloud software companies and their user-based subscription pricing. Companies would see a decline in the number of human users as AI agents replaced them, while also duplicating many of the functions of expensive enterprise software.
The enterprise software landscape groups into three basic categories, and representatives from each of them reported their earnings last week.
The AI winners are primarily companies that deal in cybersecurity and data management, which perform crucial functions in the emerging AI landscape, and CrowdStrike's earnings solidified that story.
The biggest group is the AI adapters, who must aggressively disrupt themselves to reshape their business for AI, and no one has taken this idea to heart more than Salesforce, which was able to flip the AI narrative in its earnings call.
Finally, there are the AI losers like Intuit, which only deepened worries for its future with its outlook.
Evidence is piling up that AI increases security threats. In the first place, AI agents can carry out attacks at a scale and speed that no human could match. Recently, agents in an OpenAI testing environment broke loose, coordinated, and not only hacked OpenAI's internal systems, but also AI model repository Hugging Face. The hacks began in May and were only shut down in July.
Moreover, the agents themselves have become an attack surface. At the Def Con security conference in Las Vegas in August, there were several demonstrations of these types of attacks, and we've already seen some in the real world this year. The need for security has never been greater, and that is only going to grow as AI gets better at these attacks, and more agents get deployed on enterprise networks.
CrowdStrike is one of the security "platform" companies, with a wide range of security services. It's also been adding new AI-focused products through acquisitions. All this is starting to play out in real time in CrowdStrike's financials.
Sales growth rates turned up a year ago after years of falling, hovering around 25% in the last two quarters, and the company issued third-quarter guidance for 24% growth. Earnings and free cash flow are growing even more quickly.
CrowdStrike beat Wall Street estimates on all key metrics, and the stock was up 20% the next day. Analysts followed with big upgrades in projected financials and price targets. According to FactSet, there have been 39 new analyst notes with price targets that were issued since earnings, and all of them were raised to an average of $232, just above Monday's close of $231. Even after all the earnings upgrades, CrowdStrike trades at 146 times next year's projected earnings per share.
Salesforce is one of the central characters in the AI software apocalypse market narrative, and its financials were not nearly as impressive for its second quarter, beating expectations by just a little (once a $2.7 billion unrealized gain from Anthropic stock is excluded from net income and EPS).
But CEO Marc Benioff orchestrated a point-by-point refutation of the negative narrative. It began with an announcement that deepened the company's business relationship with Anthropic, the leading AI model maker for enterprise customers, and the company's CEO, Dario Amodei, participated in the earnings call. The two CEOs batted back suggestions that Anthropic AI models and agents would replace Salesforce software, and showed the ways in which they are becoming integrated with each other.
Benioff went on to refute specific elements of the bear story, including the idea that human users will decline.
Salesforce made a strong case that AI features are add-on sales, and aren't cannibalizing the core sales streams.
Its Agentforce agent software has seen annual recurring revenue rise by 240% over the past year to more than $1.5 billion. This is still small in the grand scheme of things, but it's building momentum. The second quarter was a strong one for new bookings, also lending credence to Benioff's claims. The stock was up 23% the day after earnings.
Even though analysts issued upgraded earnings projections for Salesforce, the company's P/E ratio for next year rose to 16 from 13 from the rally. It's still well below the S&P 500 forward P/E at 19. Until July 2025, Salesforce had always traded at a premium to the index, not a discount.
If the company can follow through and reaccelerate growth like CrowdStrike has done, second-quarter earnings will look like the turning point. Even after the run, the stock is still down 30% from its all-time high in late 2024.
Intuit is one of the AI losers, and its stock continues to reflect that, falling 56% since its all-time high in July 2025. Though it narrowly beat earnings expectations like Salesforce, its forward guidance disappointed with a revelation that the company was going to lower prices. The bear narrative that cloud software's pricing power would come under attack was borne out.
"I want to provide both our teams and the company flexibility to be able to compete at the low end and win market share," Intuit CEO Sasan Goodarzi told Barron's last week.
Unlike Salesforce, Intuit reinforced the software apocalypse narrative. The stock declined 3% the following day, and there were downgraded financial projections. Of 25 Wall Street notes after earnings, 15 lowered their price targets.
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