Key Takeaways
- Citi Research cut ratings on six software companies — Similarweb, Docusign, Autodesk, Nice, CCC, and Veeva — moving them from Buy to Neutral
- Price target reductions exceeded 40% for several companies as analyst confidence wanes
- Piper Sandler identified Anthropic’s Claude Managed Agents as a competitive threat to established software providers
- Cloud infrastructure giants Microsoft and Oracle emerge as preferred investments over traditional software firms
- CNBC’s Jim Cramer identifies renewed momentum in the “hardware over software” investment strategy
On Friday, Citi Research delivered a blow to the application software sector by downgrading six prominent companies from Buy to Neutral ratings. The affected firms include Similarweb, Docusign, Autodesk, Nice, CCC Intelligent Solutions, and Veeva Systems. Share prices for all six companies declined following the announcement.
According to Citi analyst Tyler Radke, the downgrades stem from an absence of positive near-term catalysts combined with mounting evidence that artificial intelligence poses a genuine threat to conventional software business models. “While we view most of these as solid companies potentially positioned well for the future, they lack compelling catalysts over the next 12 months,” Radke explained in his analysis.
The downgrades came with substantial price target reductions. Docusign’s target plummeted from $99 to $50. Veeva’s projection dropped from $291 to $176. Similarweb experienced the most dramatic revision, with its target slashed from $8.50 to just $3.
Radke highlighted that private AI enterprises are projected to generate more than $100 billion in incremental revenue over the next several years. This figure dwarfs the estimated $50 billion expected from traditional application software providers. Additional headwinds include increasing costs associated with software optimization and ongoing vendor consolidation trends.
Anthropic’s Agent Platform Intensifies Competitive Concerns
Piper Sandler analyst Billy Fitzsimmons identified another factor contributing to software sector weakness. Anthropic recently unveiled Claude Managed Agents, a ready-to-deploy agent framework optimized for extended and asynchronous workflows.
Fitzsimmons noted that this development heightens worries that Anthropic’s technology will directly challenge agent solutions developed by incumbent software vendors. His outlook anticipates persistent negative sentiment toward the software industry lasting at least through the end of the year.
Piper Sandler responded by downgrading multiple software companies while shifting preference toward firms that directly monetize AI computational resources. The firm highlighted Microsoft and Oracle as top investment choices, 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 and produces $77.4 billion in levered free cash flow. Even after declining 27% over six months, Piper Sandler views the stock as undervalued.
Hardware Stocks Advance While Software Retreats
CNBC’s Jim Cramer drew attention to the expanding gap between hardware and software stock performance during Thursday’s market coverage. He observed that the “buy hardware, sell software” positioning that characterized early 2026 trading has reemerged with force.
Salesforce declined nearly 3% and Adobe shed approximately 4% on Thursday. The IGV software ETF, a widely tracked sector benchmark, tumbled more than 4%. CrowdStrike dropped 7.5%, despite its cybersecurity focus, primarily due to its significant weighting in the fund.
Conversely, hardware names rallied. Marvell Technology and Intel each advanced nearly 5%. Corning, a supplier of data center materials, climbed 2.85%.
Cramer argued that businesses providing AI infrastructure are significantly outperforming while enterprise software is increasingly viewed as a fading industry. He suggested this dynamic appears unlikely to reverse soon.
Piper Sandler also spotlighted Global-e Online as a favored investment. The company’s revenue model ties to ecommerce transaction volumes rather than software subscription seats, with management projecting 29% revenue growth this year.
