Key Takeaways
- Six software companies—Similarweb, Docusign, Autodesk, Nice, CCC, and Veeva—received downgrades from Citi, moving from Buy to Neutral ratings
- Price target reductions exceeded 40% for several companies in Citi’s sweeping reassessment
- Anthropic’s Claude Managed Agents emerge as a competitive threat to established software vendors, according to Piper Sandler
- Hyperscale cloud providers including Microsoft and Oracle are now preferred investments over traditional software names
- Market dynamics favor hardware infrastructure plays while software companies face mounting pressure, according to Jim Cramer
A wave of pessimism hit the application software sector Friday as Citi Research slashed ratings on six companies, moving them from Buy to Neutral. The affected firms—Similarweb, Docusign, Autodesk, Nice, CCC Intelligent Solutions, and Veeva Systems—all experienced share price declines during Friday’s session.
Tyler Radke, analyst at Citi, explained that the downgrades stem from diminishing near-term opportunities and mounting evidence that artificial intelligence is beginning to undermine conventional software operating models. “These companies may possess strong fundamentals and favorable long-term positioning, but they lack compelling catalysts over the next twelve months,” Radke noted in his research.
The price target adjustments were dramatic. Docusign’s target plummeted from $99 to $50. Veeva’s projection dropped from $291 to $176. The most severe reduction hit Similarweb, whose target collapsed from $8.50 to just $3.
Radke highlighted that privately-held artificial intelligence ventures are projected to generate more than $100 billion in incremental revenue over the coming years. This figure dwarfs the $50 billion expected from traditional application software providers. Additional headwinds include escalating software optimization expenses and accelerating vendor consolidation trends.
Claude Managed Agents Intensify Competitive Concerns
Piper Sandler’s Billy Fitzsimmons identified another factor weighing on software valuations. Anthropic’s recent launch of Claude Managed Agents—a pre-configured, customizable agent framework built for extended and asynchronous operations—has sparked anxiety across the sector.
Fitzsimmons argued that these new capabilities position Anthropic as a direct rival to incumbent software providers developing their own agent technologies. He anticipates sustained negative sentiment toward software equities extending through the remainder of the year.
The firm executed downgrades across multiple software names while shifting preference toward businesses that capture AI compute revenue directly. Microsoft and Oracle emerged as Piper Sandler’s preferred selections, driven by their Azure and Oracle Cloud Infrastructure platforms respectively.
Microsoft currently commands a forward price-to-earnings multiple of 20x based on 2027 projections and produces $77.4 billion in levered free cash flow annually. Even after declining 27% over six months, Piper Sandler views the stock as attractively priced.
Infrastructure Winners Emerge as Software Struggles
Jim Cramer of CNBC spotlighted Thursday the widening performance gap separating hardware from software equities. The “buy hardware, sell software” positioning that characterized early 2026 trading has made a definitive comeback, he observed.
Salesforce surrendered nearly 3% Thursday while Adobe retreated approximately 4%. The IGV software ETF, a sector bellwether, tumbled more than 4%. CrowdStrike, despite its cybersecurity focus, dropped 7.5% primarily due to its inclusion in the fund.
Meanwhile, infrastructure beneficiaries advanced. Marvell Technology and Intel each climbed close to 5%. Corning, a supplier of data center materials, appreciated 2.85%.
Cramer characterized the current environment as one where AI infrastructure enablers are thriving while enterprise software is being valued as a sunset industry. He expressed skepticism that this dynamic will shift meaningfully in the immediate future.
Piper Sandler also elevated Global-e Online as a favored selection. The company’s revenue model ties to ecommerce transaction volumes rather than traditional software licensing metrics, with management projecting 29% revenue expansion for the current year.
