Key Takeaways
- Six software companies—Similarweb, Docusign, Autodesk, Nice, CCC, and Veeva—received downgrades from Citi, dropping from Buy to Neutral ratings
- Price target reductions exceeded 40% for several companies in the group
- Anthropic’s Claude Managed Agents identified by Piper Sandler as emerging competitive risk to established software providers
- Wall Street analysts recommend hyperscale cloud providers Microsoft and Oracle over conventional software firms
- Market observers note renewed strength in “hardware over software” investment strategy with potential staying power
A wave of downgrades swept through the application software sector Friday as Citi Research slashed ratings on six companies from Buy to Neutral. The affected firms—Similarweb, Docusign, Autodesk, Nice, CCC Intelligent Solutions, and Veeva Systems—all experienced share price declines during the trading session.
Tyler Radke, analyst at Citi, attributed the rating changes to an absence of positive near-term developments and mounting anxiety that artificial intelligence technologies are beginning to undermine established software company frameworks. “Our view is that these remain quality businesses with potential long-term positioning, but they lack compelling catalysts over the next twelve months,” Radke explained in his research note.
The firm implemented aggressive price target reductions alongside the downgrades. Docusign’s target plummeted from $99 to $50. Veeva’s projection fell from $291 to $176. The most severe adjustment hit Similarweb, whose target crashed from $8.50 down to just $3.
Radke highlighted projections showing privately-held artificial intelligence companies positioned to capture more than $100 billion in incremental revenue during upcoming years. This figure dwarfs the estimated $50 billion growth expected from traditional application software providers. Additional headwinds include escalating software optimization expenses and accelerating vendor consolidation trends.
Claude Managed Agents Emerge as Competitive Force
Piper Sandler’s Billy Fitzsimmons identified another factor contributing to software sector weakness. Anthropic recently unveiled Claude Managed Agents, a ready-to-deploy, customizable agent framework optimized for extended and asynchronous workflows.
According to Fitzsimmons, this development intensifies worries that Anthropic’s agent offerings will directly challenge solutions developed by incumbent software enterprises. The analyst anticipates sustained negative sentiment toward software stocks extending through the end of this year.
The Piper Sandler team reduced ratings across various sector constituents while expressing preference for businesses that directly monetize artificial intelligence computing resources. Microsoft and Oracle emerged as their favored selections, driven by the strength of Azure and Oracle Cloud Infrastructure platforms respectively.
Microsoft currently commands a forward price-to-earnings multiple of 20x based on 2027 projections while producing $77.4 billion in levered free cash flow. Notwithstanding a 27% pullback over the preceding six months, Piper Sandler characterizes the stock as attractively priced.
Infrastructure Plays Outperform While Software Stumbles
Jim Cramer of CNBC emphasized the widening performance gap between hardware and software equities during Thursday’s broadcast. He noted the “hardware買, software売” positioning that characterized early 2026 markets has reasserted itself.
Salesforce declined nearly 3% while Adobe retreated approximately 4% on Thursday. The IGV software ETF, a widely-tracked sector benchmark, surrendered more than 4% of its value. CrowdStrike plunged 7.5%, despite its cybersecurity focus, primarily due to its significant weighting within the fund.
Conversely, hardware names posted solid advances. Both Marvell Technology and Intel climbed close to 5%. Corning, a key supplier of datacenter materials, appreciated 2.85%.
Cramer observed that enterprises enabling AI infrastructure continue outperforming while enterprise software faces treatment as a contracting industry. He suggested this dynamic shows little indication of imminent reversal.
Piper Sandler additionally spotlighted Global-e Online as a preferred investment opportunity. The company’s business model ties to ecommerce transaction volumes rather than software licensing metrics, with management projecting 29% revenue expansion for the current year.
