AI’s Ascendance: Is Artificial Intelligence Eating the Software Industry?
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Melius Research downgrades Adobe as AI disruption reshapes enterprise software, putting Salesforce under scrutiny.
Analysts at Melius Research are sounding an alarm: Artificial intelligence is rapidly disrupting the software landscape,a shift they liken to the impact cloud computing had on on-premise data centers. This pivotal change has led to a downgrade of Adobe to a sell rating, signaling a significant inflection point for the market.
The AI Revolution adn Software’s New Reality
For nearly a decade, the narrative has been that “software is eating the world.” Now, a new force is at play: AI is eating software. This observation, highlighted in a recent note from Melius Research, underscores the profound ripple effects artificial intelligence is creating across the stock market, demanding investor attention.
Companies like Salesforce, alongside enterprise software peers Atlassian and Workday, are finding themselves in the crosshairs of this evolving landscape. Their struggles in 2025 are directly linked to the ascendancy of AI, according to Melius. The firm posits that the rise of AI is to the current software paradigm what the emergence of cloud computing was to the era of on-premise data centers.
From On-Premise to the Cloud: A precedent for Disruption
Historically, businesses managed their data infrastructure in-house, a model requiring considerable investments in hardware and dedicated engineering teams. This approach, common for decades, involved significant capital expenditure and ongoing operational costs. The advent of cloud computing, however, offered an option.
Services like Amazon Web Services (AWS), Microsoft’s Azure, and alphabet’s Google cloud enabled companies to outsource their computing needs.AWS, launching in 2006, pioneered this shift. This transition proved challenging for companies rooted in on-premise hardware, such as Dell, Hewlett-Packard, and IBM. Melius Research noted that these firms experienced a significant contraction in their price-to-earnings (P/E) multiples, a clear indicator that investors anticipated slower growth.
Amazon are poised to benefit. Their cloud services are instrumental in enabling other businesses to leverage AI. Melius Research specifically identifies “software companies with clouds” such as microsoft and Oracle as continuing to experience accelerated demand.
A key driver of this demand is the rise of AI agents, which automate tasks and, in turn, fuel the need for more computing power. Agentic AI systems, capable of performing tasks without human intervention, are becoming a focal point of investment.
Salesforce at a Crossroads
Salesforce finds itself in a complex position, operating both as a SaaS provider and a company actively recognizing the transformative potential of AI. While the firm’s core customer relationship management (CRM) software remains critical for many businesses, the underlying SaaS model faces potential erosion.
The seat-based licensing of SaaS means that if AI enables Salesforce’s customers to operate with fewer employees while increasing productivity, demand for software seats could decrease. This scenario, Melius suggests, could impact Salesforce’s revenue streams.
however, Salesforce is not standing still. The company is developing its own agentic AI offering, dubbed Agentforce, aiming to help clients navigate the AI era and create new AI-driven revenue streams. Moreover, Salesforce primarily serves the enterprise sector, characterized by a more loyal and less volatile customer base, which might offer some resilience.
While Microsoft also competes in the CRM space and offers tools for building agents, Salesforce’s strategy appears clearly defined. Despite these efforts, melius Research has downgraded Salesforce’s shares to a hold-equivalent rating. They emphasize the need for tangible proof in the numbers to confirm the company’s ability to adapt to this new AI-driven surroundings.
“Salesforce is still a great house, but the neighborhood is deteriorating,” one analyst commented, highlighting the broader market sentiment and the critical importance of adapting to the changing landscape. The market’s concern regarding the SaaS space is understandable, and investors await clear evidence of Salesforce’s successful navigation of this AI-powered disruption.
